Many know the stricter Medicaid rules that were put into place several years ago can present problems as they try to qualify for the government program. Unfortunately, many aren’t quite sure what that means for their situation. Congress put these new compliance guidelines in place in order to ensure money was available, across the board, for those who require government paid nursing home care. The Medicaid 5 Year Look Back period was one of those new rules.
Medicaid 5 Year Look Back
Medicaid, a jointly funded federal and state government program, is intended to provide health care for those who cannot afford it and who meet other stipulations. It’s also become the major source of financing for long-term care, paying nearly half of all nursing-home bills after residents run out of money. The majority of states require nursing home residents to spend their assets prior to qualifying, often requiring them to have no more than $2,000 in assets, before they qualify. For married couples, the rules are slightly different if one spouse remains in the couple’s home.
Considering that a nursing home costs roughly $75,000 per year across the nation, it’s easy to see how quickly one’s life’s savings are wiped out. Long term care insurance is one way of bypassing the lion’s share of that; however, for many, it’s not an option considering how expensive these policies can be for those who buy later in life or who have extensive medical problems. This means for those who’ve not yet gone through their life savings, they won’t qualify for Medicaid until and unless they’ve spent that money.
One way some handle this is to give their assets away versus waiting until they’re gone and the will is read.
When a Medicaid applicant gives away property within five years of applying for Medicaid coverage of long-term care, the government takes that as a sign the assets were given away simply to qualify for coverage. Further, the assumption is that once Medicaid is secured, those “gifts” are given back. This likely will trigger a period of ineligibility for Medicaid long-term care benefits on the theory that those assets could have been used to pay for the individual’s care. The so-called “penalty period” equals the amount given away divided by the average cost of nursing-home care in your specific area. For example, if you give $50,000 to family members and a nursing home costs $5,000 a month where you live, you can’t qualify for Medicaid for ten months.
Therein lies the challenge, unless you know how to properly bypass those strict requirements.
Irrevocable Trusts
One way many deal with this dilemma is to earmark funds sufficient to pay for care, then establish an irrevocable trust to remove remaining assets from the estate. Those assets then no longer belong to the applicant, but rather, to the trust. The key is to put these dynamics in place sooner rather than later. When done properly (and legally), applicants are better able to plan for the future, especially when it comes to healthcare costs.
There are a number of ways of accomplishing this and other safety mechanisms, but speaking with an estate planning lawyer is your first best step. You want to remain in compliance and your legal advocate can help ensure that’s exactly what happens. To learn more about Medicaid’s 5 year look back period and the role of irrevocable trusts, contact our offices today. By taking the time now to review your estate plan, you’re already a step ahead and better protected for whatever the future holds.
- What You Need to Know to Protect Your Special Needs Child - May 30, 2023
- How Tax and Non-Tax Considerations Impact Estate Planning – Part I - May 25, 2023
- The IRS’ Annual Warning: The 2023 Dirty Dozen - May 23, 2023
