【Epoch Times, October 23, 2026】Elderly individuals in the United States who are applying for Federal Medicaid (commonly referred to as the “white card”) to cover nursing home expenses must be cautious when transferring money to their children before applying, as loans must meet three federal legal conditions to avoid being considered as gifts. Failure to meet these conditions may result in a temporary loss of nursing home subsidy.
According to an article published on the financial website “24/7 Wall St.” on October 22, a hypothetical case was presented to illustrate this regulation: a widowed father transferred $90,000 to his daughter who needed to purchase a house just weeks before moving into a long-term care facility. Subsequently, the two signed a loan agreement. The father believed that since it was a loan, Medicaid could not consider this money as a gift, and therefore, he would not lose the nursing home subsidy for a period of time.
However, the article pointed out that this notion is only partially correct. When reviewing Medicaid applications, the agency examines the applicant’s past asset transfers. If money is transferred to family members below fair market value, it may trigger a penalty period during which Medicaid does not cover nursing home expenses. Whether signing a loan agreement can alter the outcome depends on whether the agreement meets the three federal legal tests.
According to federal law (Title 42, Section 1396p of the U.S. Code), when elderly individuals lend money to family members, the loan agreement must simultaneously meet the following three conditions for the money not to be considered as property given away by Medicaid:
1. The repayment period should not exceed the lender’s anticipated remaining lifespan. Life expectancy is based on the tables published by the Social Security Administration (SSA). For instance, if an elderly individual is expected to live for another 7 years according to the table, the loan must be repaid within 7 years.
2. The repayment amount must be identical for each period, from the first installment to the last. It cannot involve only paying interest first or repaying the principal later, nor can there be irregular repayments with a lump sum payment at the end.
3. The loan agreement must explicitly state that the debt remains valid after the lender’s death, and the children are still obligated to repay the remaining amount to the lender’s estate.
If any of these conditions are not met, Medicaid will calculate the amount given by the father on the day of the application that the children have not repaid at that time. As a result, the father will be temporarily ineligible for Medicaid’s nursing home subsidy, and during this period, he must find ways to cover the expenses himself.
The article mentioned that common practices in many families, such as “repaying after selling the house” or “paying only interest first and discussing the principal later,” do not comply with the requirement of identical repayment amounts. Regarding the third condition, the article stated that this is often the most difficult for families to accept as many parents lend money to their children with the intention that the debt does not need to be repaid after their passing. However, from Medicaid’s perspective, “not needing repayment after death” equates to giving the money to the children, just deferred until later, resulting in the father being temporarily ineligible for subsidies.
Furthermore, even if all three conditions of the loan agreement are met and the money is not considered a gift, the father may still temporarily lose eligibility due to the loan agreement itself.
When applying for Medicaid nursing home subsidies, the applicant’s assets must fall below a certain threshold. According to the regulations of the Social Security Administration, if the loan agreement can legally be sold to someone else, it is typically considered part of the lender’s assets, and its value is calculated based on the outstanding amount that the children have not repaid. Unless the applicant can prove that the agreement cannot be sold for as much money, the father’s assets may still exceed the threshold due to the $90,000 loan, requiring the children to gradually repay the debt and reduce the assets below the threshold to receive the subsidy.
The article noted that if the loan agreement explicitly prohibits transfer or sale, the father cannot sell it to someone else for cash, leading to a different calculation by Medicaid. Moreover, the practices of different states can vary.
It is also important to note that practices in some states are the opposite. For instance, in Ohio’s 2015 regulations, an agreement that cannot be sold is itself considered as giving away money. Therefore, “stating that it cannot be sold” is not a universally applicable solution. It is advisable to mention that “practices may vary by state” in the main text for a more prudent approach.
The monthly repayment made by children may also have an impact. The article explained that if the loan agreement is considered as an asset, the principal repaid by the children is generally seen as the father reclaiming his assets, while the interest is counted as his income. If the loan agreement cannot be sold and is not considered an asset, the principal repaid by the children may be treated as the father’s income. Regardless of the algorithm used, the repayment by the children could potentially increase the monthly care costs the father needs to pay.
The article listed documents helpful in proving the authenticity of the loan during the review process, including the loan agreement signed at the time of the transfer, bank records showing the transfer of funds from the father’s account to the daughter’s account, records of the daughter’s regular repayments, written interest and repayment conditions consistent with the loan agreement, and relevant regulations on evaluating the loan agreement value in the applicant’s state. The article noted that a loan agreement with no record of repayment may appear similar to a gift during the review process.
Medicaid is a jointly operated healthcare assistance program by the federal and state governments, providing coverage for nursing home expenses after the applicant’s savings are depleted. On the other hand, Medicare, primarily targeting individuals aged 65 and above, only covers short-term hospital stays for rehabilitation purposes.
The article recommended that families should weigh two costs before signing: avoiding penalties for asset transfers and the potential implications of the loan agreement on asset and income determinations, and seek advice from legal professionals specializing in elder law in the state where the applicant resides before transferring funds.