With roughly half of us expected to find ourselves in need of nursing home care later in life, it’s never too early to start thinking about how we’re going to pay for those long-term care expenses. The fact is that nursing home costs have risen steadily for many years now, and most analysts expect them to continue to do so for many years to come. If you’re like many other people, you may find that your only real option for meeting those expenses will involve applying for Medicaid’s long-term care benefits.
Of course, that program’s application process is notoriously challenging, and has left many a senior almost completely impoverished and entirely reliant on government assistance. That’s not an ideal situation, since most seniors have spouses or loved ones who may need continuing support. Most would also like to retain at least some of their wealth so that it can be passed on to their heirs. Few want to become so destitute that their very existence is dependent on the kind mercies of a government program. Fortunately, there are ways to avoid that impoverishment and dependency, but to use them effectively you need to understand the Medicaid lookback period.
What is the Medicaid Look-back Period?
To understand the Medicaid look-back period, it’s important to understand why it was created. There has long been concern in some quarters that some Medicaid applicants might abuse the program by sheltering vast sums of wealth so that they can qualify for benefits. Those who oppose such asset-sheltering schemes often point to instances in which millionaire families have sequestered their wealth in ways that remove it from consideration during the eligibility determination process. It’s not surprising that many people were outraged at the thought of wealthy people qualifying for a program that was designed to help low-income families.
To limit that potential for abuse, Congress passed laws designed to limit the types of transfers that Medicaid applicants can make in the years prior to seeking those benefits. Since 2006, the law has provided the Medicaid program with the power to review all transfers made within the five-year period directly preceding any Medicaid application. The government reviews those transfers of wealth and can penalize applicants who attempted to shelter wealth by transferring ownership to another person for anything less than the fair value of the asset. Obviously, for those who are unfamiliar with the rules, these penalties can come as quite a surprise.
How it Works
It’s important to understand how this transfer penalty process works, so that you can try to avoid falling into the Medicaid transfer trap. When Congress passed the law that created the look-back period, it was trying to prevent you from squirreling away assets so that you could avoid paying for your own care. Thus, if you were to learn on Monday that you need long-term care, this law would prevent you from transferring all your wealth to your loved ones on Tuesday just so you could qualify for program benefits later that week. To guard against that, Medicaid begins its look-back from the day you applied for benefits, and examines all asset transfers made during that five-year period.
When such transfers are found, they can trigger a penalty. Since the transfers are not a crime, the penalty is not criminal in nature either (though knowingly trying to conceal those transfers could violate criminal laws). Instead, the penalty comes in the form of ineligibility for benefits for a period that is based on the total value of the transfers found and the average cost of nursing home care in your area. The result is a period of ineligibility that can last for months or even years.
Let’s look at a typical example of how this penalty might occur. If you transferred $140,000 in assets in the five years prior to applying for program benefits, and the average cost of care in your area is $7,000 a month, then Medicaid would penalize you with an ineligibility period lasting 20 months. Every additional $7,000 of impermissible transfers would net an additional one month of ineligibility.
Exceptions to the Rule
As you might expect, the government has created exceptions to those rules. For example, you can transfer assets to your spouse without triggering the penalty. You can also transfer wealth to your child if that child is blind or disabled. You can also transfer assets to a trust that is used for those dependents’ benefit.
There are also certain assets that don’t get counted for the purposes of eligibility. You can transfer your home to your spouse, to a blind or disabled child under that age of 21, or to a sibling with equity in the home. You may also be able to transfer it to a trust if that trust is designed to benefit another disabled individual. You can also transfer the home to your adult child if that child has lived with you for no less than two years prior to your transfer to a nursing home, providing care that helped you put off a move to the nursing home.
Avoid These Problems
The problem with all of this is that you could try to transfer wealth to meet Medicaid’s asset guidelines, trigger a penalty, and then find yourself with no assets to pay for your nursing home care and no Medicaid benefits to make up the difference. Clearly, that is a situation that we all need to avoid – and the best way to accomplish that goal is to rely on the services of an experienced Medicaid planning attorney.
At Robert J. Kulas, P.A., Medicaid & Estate Planning Attorneys, our long-term care planning experts can work with you to ensure that your Medicaid eligibility is secured long before you ever need it. We can assist you with estate and retirement planning, as well as Medicaid planning that will eliminate any potential for ineligibility penalties. If you’re worried about how the Medicaid lookback period might impact your ability to meet the rising costs of nursing home care, learn how we can help by contacting us online or calling us today at (772) 398-0720.
