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Her house is now sold and I was told she needs to reapply for Medicaid.

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The business office in the nursing home will typically suggest that you simply spend all her assets down.

When you say "she is in a penalty period" this implies that she has applied for Medicaid and that her assets were to high to qualify. As a result, the state imposed a "penalty period" which is calculated by dividing the amount of her countable assets over the resource allowance (the amount she is permitted to retain) of $2,000 by the State of Indiana's Divestment Penalty Divisor of $5,733. The result is the number of month's of ineligibility.
Ex: Mother has $53,733 over the limit of $2,000. $53,733 / $5,733 = 10 penalty months.

Essentially, therefore, mom will be compelled to pay for her own care - spend down her assets - until she reaches the limit of $2,000. At that point she will be permitted to retain only $52 per month of her income for all of her personal needs. This, to me, does not represent a good plan.

If you transfer her assets in a manner that will not trigger a penalty you can then reapply prior to the expiration of the penalty period (like now) and preserve money for her use WHILE receiving Medicaid benefits.

Here is one idea: http://nonprofitpooledtrust.org/

The above is provided for educational and informational purposes, is from sources available to the general public, and should not be considered legal or financial advice.
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Read Gabiel Heiser's book, "Medicaid Secrets" before you meet with the elder law attorney. Will help you organize in advance, possibly saving some hours of lawyer fees. Book is at your public library.
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The Business Office at her nursing home should be able to guide you through a lot of this, after all they do want their bill paid by somebody (like you). Once out of the penalty period, they will bill M.A. directly ( assuming you re-apply and get approved).
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Federal law prohibits transfer of assets for 5 year period of becoming eligible for MedicAid. There is not any way to come up with any "good plan" at this point, to shelter assets or try to save it for anybody but Mom. The only exception is if nursing home (or MedicAid) is farther than 5 yrs into the future. I'm not a CFP but have been doing lots of research, the answer to this very common question is always the same, no transfers within 5 yrs. Some day they might make it 7, or 10 yrs. So better set up your trusts etc well in advance, and certainly not while Mom is currently within a penalty period.
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If there are assets, contact an elder law attorney, he/she will be able to guide you .
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