Protect Your Elderly Parents From Medicaid’s “Look Back Five Years” Rule

If your parents are “active seniors” spending their golden years biking together without a helmet, like the smiling silver foxes in the stock image above, you probably don’t care how they pay for a nursing home – it’s still years away . . But making a plan early can protect their money, and that money could end up being your money if your parents like you enough.

One private room in a US nursing home costs an average of $297 per day or $9,034 per month. This mind-boggling figure is out of reach for most, but it can be offset by Medicaid, which typically pays 100% of nursing home costs for eligible people. But there is one catch. The government generally expects people to return almost all of their Medicaid income and spend their savings before the benefits kick in. money. So if your parents have saved up a lifetime of wealth, all of it could go to a nursing home shortly after mom breaks her hip in a bike accident or dad gets dementia .

Scary five year look back

To prevent people from giving away their wealth just before they start receiving long-term care Medicaid benefits, the program has a five-year “look back” period (in most states). Starting on the date of application, the relevant government agency will review the applicant’s and spouse’s financial transactions over the past five years for material gifts and assets sold at below market value. If they find any, the program may penalize applicants by denying Medicaid benefits for a period of time, usually the length of time they would have been able to pay for long-term care had the gift not been given or if the assets had been sold. at fair market value.

There are so many details from state to state and on a case-by-case basis that it makes sense to talk to a professional if there is enough money to make it worth it, but in general: debt payments, home repair and modification costs, funeral trusts. , personal care agreements , and certain types of annuities are generally not penalized during the lookback period. Charitable donations, gifts to family members above a government-set value, and transfers of property or goods at below-market prices are likely to be re-evaluated for acceptability—you can’t get away with buying your mom’s $5 car.

It’s worth noting that Medicaid and the IRS definitions of a “gift” usually differ. Thus, a gift may be small enough to be tax-free at the federal level, but not small enough for Medicaid.

The value of an early start

The most obvious way to completely avoid retrospective penalties is to plan at least five years ahead: if your relatives give you a million dollars five years and one day before they apply for benefits, Medicaid will never know. Individual situations vary, as do laws in different states, but creating a revocable or irrevocable trust is a common asset protection strategy for the aging, but generally only “works” if done before the start of the five-year lookback period. . In other words: Consult with a financial professional who specializes in Medicaid planning as soon as your parents agree.

Asset payout

If your parents didn’t establish a trust in time and gave you all their money years ago, there are still asset payout options that won’t alarm Medicaid. This varies from state to state, but in general, the following types of gifts can be given to the following types of people during the lookback period and even after long-term care enrollment.

• Spouse : Medicaid treats a couple’s entire wealth as joint property in determining eligibility, but the non-applicant spouse receives most of the total. The amount varies by state, but the federal maximum for a spouse’s domicile is $148,620.
• Children : Trusts can be created for children under 21, disabled or blind.
• Siblings : A Medicaid recipient’s home may be transferred to a sibling if they are co-owners and have lived in the home for at least one year prior to the applicant’s stay in the nursing home.
• Child Caregiver : A home may be transferred to an adult child who has been a caregiver if the child has spent at least two years immediately prior to the parent’s move to the nursing home.

What to do if your parents broke the rule of looking back

People can (maybe even often) break the lookback rule without the intention of cheating the Medicaid system, and there are strategies that can help them qualify for Medicaid. These include:

• Recovery of Assets : If the Medicaid applicant is able to recover their donated assets, Medicaid may review any sanctions. Some conditions require full recovery, some partial.
• Excessive Hardship : If an applicant attempts to return donated assets and fails (this televangelist may not return your parents’ generous donations) and cannot provide food, clothing, or housing, they may be eligible for Medicaid benefits. But it won’t be easy. Anyone trying to contest a Medicaid fine should consult with a financial professional. This is not a situation for independent study.