Medicaid’s Five Year Look-Back Period

Anyone who has researched Medicaid planning has almost certainly heard of Medicaid’s dreaded five year look-back rule. I am not exactly sure why out of all the idiosyncrasies of New York’s Medicaid laws, the five year look-back is one of the most ubiquitous, but my guess is because it is one of the harshest. This article will attempt to explain how the 5 year look-back works and what seniors and their caretakers can do to plan around it.

The Rule:
If a New Yorker needs nursing home services and applies to Medicaid to pay for them, Medicaid looks back for 5 years to see whether he or his spouse made any gifts or uncompensated transfers of assets. If the individual or their spouse made any gifts within 5 years of the date of the Medicaid nursing home application, NY State imposes a penalty period based on the size of the uncompensated transfer, which is called a penalty period. The penalty period is calculated by combining all gifts made within the 60 months prior to the application divided by the average monthly cost of a nursing home which, in New York City, is $11,843 in 2015. The penalty period starts from the time the client is in the nursing home, is otherwise eligible for Medicaid, and has used up his “non-exempt resources”, which are liquid assets over $14,850. It is important to note that, currently, in New York, there is no penalty for these transfers if the senior requires “community Medicaid” which includes Medicaid home care services. Client are often surprised (and relieved) to learn this, but that doesn’t mean that they shouldn’t plan for two reasons: (1) we never know if and when nursing home care will be required and (2) New York may follow other states and change its laws to impose a penalty period even for community Medicaid.

The Application:
For example, Joe, 72 and single, owns $110,000 worth of stocks and a checking account worth $14,850 when he suddenly suffers a stroke and needs a skilled nursing facility to care for him. If Joe gifts away his money now, he will have a penalty period of approximately 9 months ($110,000 divided by $11,843), which means that Medicaid will not cover his care during that period and he will have to retrieve the gifts he made and pay for his own care. At this point, Joe has a couple of options: (1) he can spend $110,000 of his money on nursing home care or (2) with the help of an elder attorney, Joe can engage in “promissory note planning” which, while outside the scope of this article, can help him preserve roughly half of his assets if implemented properly.

The Exceptions:
There are exceptions to the transfer penalty rules, which should be discussed with a qualified Medicaid planning lawyer before any transfer of assets is undertaken. The most commonly used ones are the transfer of the applicant’s home to his spouse or to a caretaker child who resided in the home with the applicant two years before the application and provided care. Additionally, any assets transferred to a spouse are exempt from penalties, as are assets left in trust for the sole benefit of a disabled child or a disabled individual under 65. An exception can also be made if the transfers were made solely for a purpose other than to qualify for Medicaid.

The Misconception:
There is a common misconception that one can give $14,000 per year as a gift to anyone they want and that the gift won’t be subject to a Medicaid penalty period. The reason for this misconception is that clients confuse the annual gift tax exclusion, which is the amount they can gift someone per year without filing a gift tax return (currently up to $14,000 in 2015) with the amount they gift someone and still avoid a Medicaid penalty. Any transfer for less than fair market value is considered a penalized transfer for Medicaid purposes.

The Plan:
The best advice any elder attorney can give their client is to prepare in advance to avoid losing their assets to long term care bills. Armed with a comprehensive power of attorney and appropriate planning techniques which include irrevocable Medicaid trusts, clients can avoid the pitfalls of the five year look-back, preserve their assets for their loved ones, and gain peace of mind.

If you have any questions about Medicaid’s 5 year look-back, please contact the Law Offices Of Roman Aminov at (347) 766-2685

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