Every day in Florida, seniors face the possibility of nursing home care as their care needs increase. And for the majority, this includes looking to the Medicaid program to pay for that care. Medicaid will pay for the cost of long-term care in a nursing home for any person over 65 who cannot afford care and meets the program’s eligibility requirements.
Knowing this, many people assume that if they spend or give away everything they own, Medicaid will pay the cost of their long-term care in a nursing home. Perhaps they’ve even been advised by a well-meaning friend or neighbor. Unfortunately, it’s much more complicated than that, and many people have been led astray.
What is the Medicaid Look-Back Period?
To prevent someone from simply gifting away everything they own to qualify for Medicaid, they have what is called a “look-back period”. If an individual makes a transfer of assets within five years of needing nursing home care, they will be assessed a penalty period and be ineligible for Medicaid.
Medicaid is a means-tested program. It was designed to help individuals and families who cannot afford to pay for care, not as a benefits program for anyone who gifts or transfers everything away. Having a plan in place is the smartest choice for those who wish to preserve their money and the surest way to avoid the Medicaid penalty period.
How Long is the Medicaid Look-Back Period?
The look-back period is the amount of time that Medicaid can go back and review assets to determine if any money or property was given away that could have instead been used to pay for nursing home costs. In Florida, this look-back period is sixty months or five years. The five years start when a person applies for Medicaid benefits. For example, a senior facing declining health gives their $50,000 savings account to their adult child as an early inheritance. Several months later, they move to a nursing facility with only a few hundred dollars to their name. With no other way to pay for long-term care, they apply for Medicaid. They will be penalized and deemed ineligible because this gift was within five years of the Medicaid application.
While this policy prevents intentional asset transfers by a person to become Medicaid eligible, it can create many unintended penalties and denials. This Medicaid mistake causes great stress for seniors and their families, which is why long-term care planning is essential.
Here at Friedman Elder Law Department, we’ve helped hundreds of people qualify for Medicaid while protecting their hard-earned assets, allowing them peace of mind for the years ahead.
Common Examples of Look-Back Period Mistakes
Medicaid will issue a penalty equal to the time a person could have paid had they not transferred or given away the asset. For example, suppose a long-term Medicaid applicant moved money away within the five-year “lookback” period. In that case, the State of Florida will assess a transfer penalty based on the funds transferred.
The transfer penalty is because money given away should have been used to care for the elder, so the Department of Children and Families (DCF) will assess a penalty that makes the applicant Medicaid ineligible for a period of time. The period of ineligibility for Medicaid is determined by dividing the amount of money given away by the average monthly private pay nursing home facility rate at the time of the Medicaid application. As of March 2023, the transfer penalty divisor is $10,809/month.
How is the Look-Back Period Penalty Assessed?
Here is an example of how the look-back penalty is assessed: A parent wants to see their two adult children get an inheritance and makes a gift totaling $100,000 on March 1, 2020. The parent unexpectedly has a stroke 20 months later. On September 1, 2022. The Medicare rehabilitation days have run out and they will need to stay in the nursing home long-term. Having given their entire savings to their children, they apply for Medicaid. According to the application, the parent’s countable assets are under $2,000, and her income is under the income cap.
However, due to the gift of $100,000 in the “look back” period, a transfer penalty is calculated as follows: $100,000/$10,809 = 9.25 months (i.e., the gift amount divided by the penalty divisor = the penalty period).
This means that due to the 2020 transfer, this applicant will not be eligible for Medicaid benefits for 9.25 months from July 1, 2022, the day they were otherwise eligible and applied for Medicaid.
Gifting Money to Family
Even though the IRS allows you to gift a certain amount of money to your family members tax-free, it doesn’t mean it’s okay under Medicaid rules. According to Medicaid, the gift is only allowed if it has been done in what they consider the regular course of giving. This is a very strictly interpreted policy.
Your gift will be penalized with a divestment penalty unless you can prove that you’ve been making the same gift in the same amounts regularly for years and years. For example, you have gifted every child and grandchild $1,000 for each birthday every year for the last twenty years.
Buying or Selling an Asset
Another common mistake is selling something for less than fair market value or paying significantly more than fair market value. If you sold an asset worth $40,000 on the fair market for half the value, Medicaid would assess you a divestment penalty for the difference.
For example, your nephew just got a job and needed a new car. You decide you’ll give him an amazing discount because he is a hard worker and a family member. Or your niece is selling her car, and you pay her double the asking price for the same reason. While that is a kind and generous gesture, Medicaid policy will not approve if done during the 60 months leading up to your Medicaid application.
Using an Irrevocable Trust
One Medicaid planning tool often considered is the use of an Irrevocable Trust. Unlike a traditional living revocable trust, once an asset is transferred to an irrevocable trust, it can no longer be removed. And the trust can be structured so that the assets are not counted by Medicaid when applying.
However, there is a significant risk in using an Irrevocable trust. Assets moved into the trust are still countable during the lookback period. Once the five years have expired, these assets are no longer countable. Careful consideration should be taken before using this option for Medicaid planning purposes.
How to Safely Avoid Costly Medicaid Qualification Mistakes
Even if you have too many assets to qualify initially, seniors have tools at their disposal. Not every tool is available for each applicant. And the exceptions and exemptions are often narrow with strict rules. It’s important to discuss potential options and long-term care needs with an experienced elder law attorney. They can help find exceptions to the Medicaid lookback rule so you can get the care you need. Our free guide 5 Tips to Protect your Savings from the Nursing Home is a great resource to get you started.
Generally, while a single person may only have up to $2,000 in countable assets, a married couple in 2023 can have around $150,000 in countable assets. If one spouse is healthier and living in the community, Medicaid does not want that spouse forced into poverty. So they allow the couple’s assets to be moved into the name of the “community spouse” and held and used by them. While Medicaid does not allow transferring assets to family members, the rule differs for married couples, and they may transfer assets up to the limit into the community spouse’s name for their use.
Transfers to Disabled Children
Another sometimes overlooked allowance is making transfers to a disabled child. Again, Medicaid doesn’t want a disabled child to be impoverished because a parent needs care, so they allow transfers without penalty.
This doesn’t make a difference if the child is a minor or an adult. If the child has been declared disabled by the social security administration, the transfer is allowed. There is no cap on the amount allowed to be transferred; however, if the disabled child receives income or asset-based benefits, that could create additional problems.
Paying bills and paying down debt like outstanding credit cards or mortgage payment is always an acceptable choice. Since an individual must have less than $2,000 to qualify for Medicaid, once a person becomes Medicaid eligible, they won’t have funds available to pay outstanding debt. Paying down debt, especially on assets that Medicaid considers excludable, like a vehicle or a home, is an excellent way to spend excess funds.
Adult Child Caregivers
Often seniors have family members willing and able to provide care in the months and years leading up to a nursing home admission. Medicaid does have a strict policy regarding payments to family members, and typically these payments are considered gifts.
However, there are exceptions for adult child caregivers. An adult child caregiver must reside in their parent’s home for two years immediately before a nursing home admission and have provided a level of care that prevented the parent from needing to live in an assisted living facility or nursing home.
Most families don’t realize that under Medicaid policy if a senior pay’s a family member for care or chores, this is considered a gift. According to Medicaid policy, a family member should offer these services for free, out of love and kindness, and not for payment. One narrow exception is if a caregiver contract agreement has been executed.
A care contract is established between a person needing care and a friend or loved one who provides the care. The benefit is that if the care contract is in place, the Medicaid department will treat the payments as fair market value transactions, assuming the care cost is reasonable. However, most care contracts must be made in advance. Since the funds paid for care are not gifts, they are income to the caregiver and must be taxed accordingly.
Irrevocable Funeral Trusts
Another great tool available is prepaying for your funeral expenses. One way to do that is by using an irrevocable funeral trust. Irrevocable means it cannot be changed, reversed, or dissolved for any reason.
Establishing an irrevocable funeral trust can help families qualify for Medicaid by spending funds that would otherwise disqualify them. If the funds are transferred to an irrevocable funeral trust, Medicaid does not count it as an asset for eligibility purposes.
Plan for Medicaid with a Skilled Elder Law Attorney
Rest assured that with proper planning, qualifying for Medicaid and nursing home care is possible. Planning before you need care is critical to protect your assets and avoid the Medicaid look-back period. Friedman Elder Law Department has extensive experience in Medicaid Planning.
We can help you walk through your options, provide peace of mind and help you qualify for Medicaid coverage. Don’t wait until you or your loved one is in crisis. Contact us at (954) 866-1055 or click here to get started today.