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Understanding Medicaid’s 5 Year Look-Back Period and Transfer Penalty

look-back period

Before selling assets, gifting assets, or transferring property, it is vital to understand the impact this may have on an individual’s eligibility for Medicaid long-term care benefits.  These may also be referred to as vendor benefits or nursing home benefits.  Seniors must understand Medicaid’s look-back period and the regulations and requirements for gifts and transfers of property. 

Any assets sold or given away during the last 60-months before the need for long-term care benefits could cause penalties and a delay in their Medicaid application process. This is also true of transferring property. Everything must be done following the proper legal requirements when seeking to qualify for Medicaid, and assets and property are involved. 

What Is the Medicaid Look-Back Rule?

First, it is essential to understand why the Medicaid look-back rule is in place.  Medicaid is an assistance program providing benefits based on means test.  A means test looks at the monetary resources a person has available to pay for specific goods or services.  The program then determines if the individual qualifies based on their income and assets. 

Generally, when a senior enters a nursing home, their life expectancy is usually limited, limiting them to spend their assets on anything besides nursing facility care.  This reduces the senior’s incentive to retain their assets for future use.  In contrast, because nursing home care is expensive and the probability of having anything left to pass down to loved ones is reduced, the incentive to transfer assets to their family beforehand is more prevalent. 

Without the look-back rule, limiting the amount of assets an individual can give away, a well-off person could give away all of their assets when it becomes evident nursing care is needed.  In this scenario, a millionaire could sign away all of their assets and immediately become eligible for Medicaid.  The look-back rule has established guidelines penalizing individuals for gifting and transferring their property to become eligible for Medicaid.

understanding medicaid look-back period

What is the Look-Back Period?

When senior citizens or disabled persons apply for long-term care Medicaid, regardless of whether it is in-home care services, a nursing home, or assisted living, there is a specific preset limit for assets or property one can have and qualify for Medicaid. Medicaid has a limit set for the amount of assets or property a person can have on hand to receive Medicaid. The look-back period is in place to prevent an applicant from gifting or selling all their assets or property under fair market value to meet the asset limit for Medicaid assistance.

The look-back period begins on the date the Medicaid application is made and looks back 60 months.  During the 60-month time frame, all transactions are subject to review before the applicant’s approval for Medicaid benefits. Before 2006, the look-back period was three years; however, Congress changed the ruling to five years as part of the Deficit Reduction Act (DRA).

Which Medicaid Programs Are Subject to the Look-Back Period?

Medicaid offers various programs, and the look-back time frame doesn’t apply to all of them. Depending on the program used for, Medicaid services may or may not require the look-back period. Programs designed for pregnant women, pregnant mothers, and newborns don’t have a look-back period.

Violations of The Look-Back Period

If the applicant violates the rule, there is a penalty period wherein the applicant is ineligible for coverage. Violations may be due to assets being sold or gifted for less than fair market value.  Or may be due to other rules and regulations outlined under Medicaid guidelines. These assets could have been sold and used to pay for long-term care and thus, if not correctly handled, will count against the applicant’s application for Medicaid.

Other examples of violations are gifting grandchildren money for graduation, transferring the title of a house to a relative, selling a coin collection for half the value, donating an old vehicle to a local charity, and other similar donations. If donations, gifts, and sales do not follow the proper channels, the applicant may become ineligible for benefits.

Receiving care without formal care agreements and paying those caregivers can also result in a violation and require a period of ineligibility. If, after the initial look-back time frame, a Medicaid beneficiary happens to come into an inheritance or gives away some or all of their money, they are also in violation of the look-back rule.

If someone violates Medicaid’s look-back period, there are still several ways in which to be Medicaid eligible. Typically, the best way to go about this is to work closely with an Elder Care Attorney who is well versed in Medicaid law, preventing any misuse of funds and penalization.

medicaid look-back transfer penalty

Spending Down Assets Not Violating the Look-Back Rule

There are many ways to spend down assets over Medicaid limits without violating the look-back period.  The strategies outlined below are ways to spend down assets; however, the Medicaid look-back period is complex.  It is recommended to consult an Elder Care Attorney before implementing any of the strategies listed below.  Further, this list is in no way intended to be exhaustive as there are many options available under the law.

Annuities

Annuities, frequently referred to as Medicaid Annuities or Compliant Annuities, are also a common way to avoid violations. Here, a person will pay a lump sum with cash. In return for the annuity, the senior, or the senior’s spouse, will receive a payment each month for a period less than their life expectancy. The annuities used for Medicaid are to convert an asset into an income stream. Thus, they lower the value of assets a person has to fall below the Medicaid eligibility limit and increase the spouse’s income which does not affect the nursing home spouse’s income or payments to the nursing home.

Buying annuities during the look-back time frame is not a violation of the rules for Medicaid. Each state has its own rules and regulations in regard to annuities and Medicaid. Keep in mind these annuities must comply with the rules and regulations.

medicaid annuity

Caregiver Agreements

If hiring a caregiver, it’s essential to have Caregiver Agreements. These are contracts outlining the relationship of the caregiver in writing.  A caregiver agreement is necessary even if the caregiver is a family member or a friend. Agreements may go by the following terms:

  • Life Care Agreements
  • Long-Term Care Personal Support Services
  • Elder-Care Agreements/Contracts

The agreement’s formality allows the senior to fairly compensate their friend or family member for the provided care. It will show the spend-down assets without the senior being in violation of the Medicaid look-back period.

The agreement also allows seniors to receive care Medicaid does not cover, and it gives friends or family members fair compensation for their time. Caregiver contracts may stay in place even if a senior enters a care facility, such as assisted living or a nursing home, as an advocate.

It’s essential to carefully draft the contract (which is typically for the duration of the senior’s life). A caregiver agreement should include the date services begin, responsibilities, and the caregivers’ work hours.  Additionally, the caregiver must keep track of the hours they work and the tasks they perform each day.  For tracking purposes, the caregiver should maintain accurate notes on the services they provide, and invoice services rendered. The contract should state the compensation amount (which must be reasonable) for the provided duties. Should the caregiver be paid upfront and the senior pass away, Medicaid requires the caregiver to forfeit any remaining unearned funds.

Home modifications

Applicants can also use assets over the Medicaid limit for home modifications without violating the look-back rule.  Home modifications can include replacing old plumbing, upgrading bathrooms, installing wheelchair ramps, a chair lift, wider doorways, etc.

Irrevocable Funeral Trusts

Irrevocable Funeral Trusts are also an option for avoiding the look-back period. Each state limits this money as to how much can be set aside for burial and funeral costs.

Paying off Debt

Paying off debt is another way to avoid a violation. If the senior chooses to pay off a mortgage or their credit cards, it is not a violation of the look-back period.

medicaid look-back period exceptions

Exceptions and Loopholes to The Look-Back Period

Fortunately, Medicaid’s look-back period has some loopholes and exceptions.  The applicant can make some transfers without being in violation in an effort to protect the family of the applicant from being destitute. Such exceptions allow for the transfer of assets without fear of any penalties. To avoid penalties, always consult a Medicaid attorney before making any transactions.

Married Couples Joint Assets

Assets for married couples are considered to be jointly owned by Medicaid. Each spouse is allocated a portion of the joint assets to prevent spousal impoverishment for the spouse not under Medicaid. There is a specific spend-down calculation based on the married couple’s financial assets.

The Medicaid applicant can transfer a maximum of $128,640 to their non-applicant spouse who continues to live independently.  This transfer of assets is known as the Community Spouse Resource Allowance (CSRA).  The maximum allowed amount may vary each year and by state.  Applicants must spend any assets over the CSRA to be eligible.

Assets Transferred to Minor Children

Applicants can also transfer some assets to legally blind or disabled children and, in some cases, under the age of 21 years old. Trusts may also be established to help aid the children in the future.

Transferring a Home

An applicant may also transfer a home to a sibling showing dual ownership.  No penalty shall apply as long as the transfer is made one year before applying for Medicaid and relocating to a nursing home.  An applicant can also transfer homes to adult children, a caregiver-child exemption, who have served as caregivers for their parents. To be eligible, the adult child has to have been the primary caregiver to the aging parents, thus not needing the parent to relocate to an assisted living facility or a nursing home. The adult child must have lived with the parents for at least two years before the parents would have entered a nursing home.

setting up trust for children

Working with an Experienced Elder Law Attorney

Medicaid’s look-back period is extraordinarily complex and can be confusing when it comes to what is allowed and what is considered a violation of the rules.  Gifts or transfers made without the guidance of an experienced Elder Law attorney can create issues for a senior who may need nursing home care in the future.  Seeking sound legal advice and guidance for Medicaid planning can mean the difference between qualifying for Medicaid and losing your life savings.

At Paths Elder Law, we have close to 30 years of experience helping seniors navigate Medicaid eligibility rules.  We have helped hundreds of senior’s plan for a brighter future by protecting them from the financial devastation resulting from the need for long-term nursing home care.

If you or a loved one require legal guidance and assistance in planning for the future to avoid penalties from things such as Medicaid’s look-back period, we are here to help.  Contact Paths Elder Law to schedule a consultation.

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