One area that causes a great deal of confusion regarding Medicaid’s look-back period. Unlike Medicare, Medicaid is a means-based program. In other words, you are only eligible for Medicaid if you have very few assets.
The government does not want you to transfer all your assets on Monday in order to qualify for Medicaid on Tuesday. So, it has imposed a penalty on people who transfer assets without receiving fair value in return.
What to Know When Applying for Medicaid
States require Medicaid applicants to disclose all financial transactions in which they were involved during the five years they applied. This five-year period is known as the “look-back period.” The state Medicaid agency then determines whether the Medicaid applicant transferred any assets during this period for less than fair market value.
Any transfer can be scrutinized, no matter how small. There is no exception for charitable giving or gifts to grandchildren. If you have a caregiver, make sure you have a written agreement in place. (If you make an informal payment to a caregiver, it may be considered a transfer for less than fair market value.)
Similarly, loans to family members can trigger a penalty period if there is no written documentation. It is up to the applicant to prove that the transfer was not made in order to qualify for Medicaid.
Are There Exceptions?
Transferring assets to certain recipients will not trigger a period of ineligibility even if the transfers occurred during the look-back period. These exempt recipients include the following:
- A spouse (or a transfer to anyone else as long as it is for the spouse's benefit)
- A trust for the sole benefit of a blind or disabled child
- A trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances).
In addition, special exceptions apply to the transfer of a home. For one, the Medicaid applicant's home may be transferred to the individuals above. In addition, the applicant also may freely transfer their home to the following individuals without incurring a transfer penalty:
- A child who is under age 21
- A child who is blind or disabled (the house does not have to be in a trust)
- A sibling who has lived in the home during the year preceding the applicant's institutionalization and who already holds an equity interest in the home.
- A "caretaker child," who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant's institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.
If the state Medicaid agency determines that an applicant has made a transfer for less than fair market value, it will impose a penalty period. This penalty is a period of time during which the person transferring the assets will not be eligible for Medicaid. The penalty period is determined by dividing the amount transferred by what Medicaid determines to be the average private pay cost of a nursing home in your state.
Speak to an Elder Law Attorney
If you have transferred assets within the past five years and are planning on applying for Medicaid, consult with an attorney. A qualified attorney can find out if there are any steps you can take to prevent incurring a penalty.
Learn more about Medicaid, its asset transfer rules, and how to become eligible.