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What is the ‘Five Year Look Back’ Period?

For individuals to receive federal assistance through the Medicaid program, which can help contribute financial assistance for care at home, in an assisted living facility, or in a skilled nursing facility, the individual must meet the threshold requirements of limited income and assets. As a result of these rules, some candidates give away their money and resources to qualify. However, there is a “look back period” before an individual’s application for benefits, during which time the Medicaid agency reviews all financial transactions. Gifts in violation of the look back rule will garner a penalty, where the applicant becomes ineligible for Medicaid. This time can be months and even years, depending on the value of the gift. To determine the penalty period, Medicaid takes the dollar amount of assets gifted and divides it by the monthly private patient rate of skilled nursing care.

Common mistakes made by families in crisis:

Gifts – The federal government’s annual gift tax exclusion amount per recipient is $17,000 in 2023 via the estate and gift tax exemption. However, the IRS regulations do not apply to Medicaid, and Medicaid will find gifts of much lower amounts violate the look back rule. Even gifts for birthdays or other special occasions like holidays or weddings may result in a Medicaid penalty. Gifting rules change state by state, making things even more complex.

Lack of Documentation – If you transfer an asset and receive a value equal to the fair market value without proper documentation, you may violate the rules of the look back period. This situation is particularly relevant for assets with a government record like boats, motorcycles, or vehicles because of their registration requirements.

Irrevocable Trusts – Many individuals incorrectly assume that an irrevocable trust (sometimes inaccurately called a Medicaid Qualifying Trust) is automatically exempt from the look-back period. Creating an irrevocable trust during the look-back period is considered a gift and a countable asset. Irrevocable trusts funded before the look back period would fall outside of the look back period.

Variances State to State: Because Medicaid is a federal and state program, look back rules vary by state. Even the penalty divisor amount varies by state because the average cost of nursing home care varies. Understanding the nuances and differences between states and Medicaid rules is crucial to successful planning.

The surest way to avoid violating a look back period infraction and qualify for Medicaid is to consult a qualified Elder Law attorney before you gift or transfer any assets. If a violation has already occurred, a qualified attorney can also offer assistance to rectify the situation. The best option to avoid the Medicaid penalty period is to plan proactively. However, for families that have not done so, there are still options to accomplish Asset Protection. Strategies to avoid violating Medicaid look back rules and resulting penalties can help families keep some of their assets while still qualifying for Medicaid. At DiPietro Law, LLC, we can help you identify which strategies are best to implement depending on your circumstances. These strategies can be complex, but with proper legal assistance, highly successful.