The big issue becomes what happens to the step-up in basis received to property upon a person's death. Some practicioners believe it is possible for legislation to pass that will provide for a higher estate tax exemption, around $3 million dollars, and a loss of the step-up in basis in property owned by a decedent at death. If a decedent's basis in property carries over to his beneficiaries, the beneficiaries could be stuck with a large capital gain on property liquidated after a decedent's death. To avoid such a capital gain, other methods should be explored to eliminate the harsh effect on beneficiaries of the carry-over in basis.

The changes in the law also make the penalty period more severe by starting the period of ineligibility at the time the individual would have otherwise qualified for medicaid, not at the time when the improper transfer was made. This means that many individuals could find themselves ineligible for medicaid and without available resources of their own to pay for healthcare costs. These changes in the law make it even more important to prepare in advance for qualifying for medicaid by transferring property more than five years prior to any need to qualify for medicaid. Other methods, such as establishing a special needs trust, or purchasing a single premium life-insurance policy, may be viable alternatives if you must qualify for medicaid in less than five years. As always, you should consult with a qualified estate planning attorney before making any decisions regarding medicaid.