If you or someone you love is trying to qualify for Medicaid, you may have heard people talking about—or in most cases, complaining about—having to wait five years to access benefits. If you don’t have access to professional guidance, you could easily fall victim to this common misconception about Medicaid.
When people complain about waiting for Medicaid to kick in, what are they talking about? It’s what Medicaid calls their five-year lookback period.
How does this work? Let’s say you’re applying for Medicaid. As part of the application process, you may be required to provide financial information for the previous five years. This includes bank statements, brokerage statements, 401(k) statements, IRA statements, life insurance policies, deeds, and more for you—and your spouse, if you have one. The Medicaid office scrutinizes all transfers made by the individual during the preceding five years to determine if any of those transfers should trigger a penalty.
A penalty-triggering transfer can take a number of forms including a cash gift, a real estate gift, a gift of valuable personal property, such as a vehicle, and the sale of an asset at below fair market value. If the Medicaid applicant made any penalty-triggering transfers during the preceding five years, it results in a period of ineligibility for Medicaid benefits. Medicaid determines the period of ineligibility by taking the sum of all penalty-triggering transfers and dividing it by a “transfer of asset divisor,” which is intended to approximate the monthly cost of a skilled nursing facility. As of July 1, 2018, the “transfer of asset divisor” is equal to $9,171. The penalty period will start once you apply for Medicaid and are otherwise eligible.
For example, if your mom, a Medicaid applicant, transferred $200,000 to you within five years of applying, it would result in a period of ineligibility of about 20 months. This is meant to disincentivize Medicaid applicants from gifting their assets away in order to become “poor on paper.” The intention of the penalty period is to force the Medicaid applicant to use up those transferred funds before Medicaid will provide any benefits.
When people hear this, they usually panic. And if they don’t get professional advice from an attorney experienced in Medicaid Planning, that panic will often result in some very bad decisions.
Even if someone you love will need Medicaid right away, in most cases, at least some of those assets can be preserved. In the elder law world, we call that Crisis Planning. Depending on language in your loved one’s Durable Power of Attorney, we can usually get them qualified for Medicaid immediately.
However, if you start planning earlier, before the nursing home crisis happens, we can save even more. The secret is what we call Pre-Crisis Planning. This often involves creating an Irrevocable Trust and transferring ownership of the elder’s assets into that trust. But not all seniors are thrilled about this powerful asset protection tool because it means giving up dominion and control of their assets. But those who are willing to follow the guidance of an elder law attorney experienced in Medicaid Planning will usually be able to save more of their hard-earned assets than those who wait. It may feel like the nuclear option to a senior who doesn’t need nursing home care—YET—but it will feel like a blessing to the family members who are looking out for the elder’s legal and financial well-being when the time comes.
You don’t have to wait five years for Medicaid benefits to kick in, even if you didn’t plan.
Written by Kathleen Flammia, Attorney at Law, one of Florida’s TOP Elder Law & Estate Planning Attorneys. Attorney Flammia is a Member of the National ElderCare Matters Alliance, and she and her firm are Featured in ElderCareMatters.com – America’s National Directory of Elder Care / Senior Care Resources to help families plan for and deal with the issues of Aging.