Blog Series Part 4: Five-Year Look Back Period

One of the most frequently misunderstood aspects of the Medicaid qualifying process is the “five-year look back period.”  In a nutshell, at the time a nursing home resident submits an application for Medicaid, not only are the applicant’s current income and assets evaluated for eligibility, but also any gifts or transfers of assets the applicant made within the past 5 years are evaluated for whether or not those gifts or transfers were made in contemplation of needing nursing home care and/or if fair market value was received in return.

For obvious reasons, this question is asked of applicants because it is the State’s desire to discourage people from giving away their money or assets in order to avoid “losing them to the nursing home.”  In actuality, my experience has found that most people are not strategically giving away their assets or money in order to shield them from the nursing home.  Instead, much more commonly, people very innocently make gifts or transfer assets to family members, never dreaming that they may need nursing home care in the next 5 years.

When the State determines that such a gift or transfer has occurred, if the applicant is otherwise eligible for Medicaid in all other ways, then a penalty period will be applied before the applicants Medicaid benefits kick in.  What this means in practice is that someone who has already spent down his or her assets and has no available funds to pay privately for a nursing home still may incur a lengthy penalty period before they can receive Medicaid benefits.  This penalty period can be absolutely devastating for both the applicant and their families and is frequently a source of litigation.

Despite the fact that the law states that gifts made with a purpose other than qualifying for Medicaid won’t be penalized, the reality of the application process is that at the local office where your application is being processed, caseworkers often routinely apply penalty periods to applicants who have made such gifts or transfers regardless of the stated purpose, forcing the applicant into a lengthy and complicated appeals process.

So what might constitute a potentially disqualifying gift or transfer in the eyes of the Medicaid program?  One example that receives close scrutiny is cash gifts in excess of $500.  This even includes routine tax-free gifts made to family members that fall within the IRS annual exclusion amount.  People often assume that because the gift is tax exempt and doesn’t need to be reported to the federal government, that it’s also allowed under Medicaid law.  Unfortunately, that isn’t the case.  Similarly, adding your child’s name to your bank account or to the deed to your house, without receiving anything in return from the child, also constitutes a potentially disqualifying transfer.  In fact, even if you do receive compensation in exchange for a transfer of assets, if it is determined that you received less than fair market value, you could be penalized.  Simply put, it is a complicated rule that trips up many otherwise deserving applicants, many of whom have no other option for paying for long term care.

Your best bet is to tread carefully when making financial decisions if you suspect there is any chance you may require long term care in the next few years.  It’s also a prudent decision to consult with a qualified elder law attorney who can help you in planning for long term care and applying for Medicaid benefits, should the need arise.

This blog post was originally created by Joellen Meckley while she served in an “Of Counsel” position in our firm. While she no longer does that, we do maintain a  professional relationship and if you have any Elder Law needs, I’d recommend you reach out to her firm Meckley Law. If you need Estate Planning, please reach out to us.



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