What is "divestment?"
Divestment, simply put, is the transfer of an asset where you do not get full value in return for the asset transferred. Giving money or other assets to your kids will be considered a divestment. Similarly, transferring assets to a charity may also be considered a divestment. Forgiving a debt is yet another form of divestment that will get some people in trouble. Often we get the question: what about the $14,000 per year that I am allowed to transfer? That $14,000 is an annual exclusion amount that refers to gift tax issues and has no bearing on the Medicaid rules.
Why should you care about divestments? During the Medicaid application review process, every divestment that appears on the financial records will be assessed a penalty. Too many poorly planned divestments, or an inappropriately timed Medicaid application, could result in a n excessively long ineligibility period. How to strategically plan the divestments to accomplish your asset protection goals is one of the most important skills your planning team will bring to the table.