The Medicaid 5-year look-back is designed to review an applicant’s personal finances for the previous 60 months to ensure he or she qualifies for Medicaid long-term care benefits and to determine whether he or she took impermissible measures to give away property that could have been used to help pay for long-term care. The rules permit certain transfers and penalize others. Any violation of the rules uncovered during this look-back period may result in a Medicaid penalty that delays the start date of Medicaid long-term care benefits.
These Medicaid benefits are often essential for living in long-term care facilities where prices average $379.65 per day in Pennsylvania. For example, a gift made during the look-back period could result in a penalty and 31 day period of ineligibility for Medicaid long-term care benefits, which could make a stay at a long-term care facility unaffordable.
Federal and state laws subject all Medicaid applicants for long-term care benefits to the five-year look-back period. Transfers and gifts uncovered during the look-back open the individual to the possible imposition of a Medicaid penalty period, during which the Medicaid applicant would be ineligible for benefits and must either forgo long-term care or figure out some way to pay the facility — sometimes with the help of family members such as adult children. Because this process can become so complicated, we’re often asked whether there are ways to legally avoid Medicaid’s 5-year look-back period.
Avoiding the Medicaid 5-Year Look-Back Penalties: Exceptions to the Rules
Although you generally cannot avoid the Medicaid 5-year look-back penalty, you may be able to avoid the adverse consequences related to gifts made within that 60-month time period. There are a number of exceptions to the Medicaid rules surrounding gifts, and certain asset transfers will not trigger penalties even when made within the 5-year look-back. These include:
1. Small gifts.
In Pennsylvania, the Department of Human Services does not penalize monthly gifts which total $500 each month in aggregate. In other words, a person could give away up to $500 in total each month without triggering penalties during the Medicaid application process. However, exceeding this threshold in even a single month could violate Medicaid rules and trigger the imposition of a transfer penalty.
For example, giving an adult child $400 each month to assist with their childcare expenses could be acceptable, but giving that adult child $400 and a friend $200 as a birthday present in the same month would push you $100 over that $500 monthly limit. Whether exceeding the limit creates a transfer penalty is fact-specific, but if the total exceeds $500 per month, there could be a problem.
Gifting money may not be in your best interest, so always use caution. Agents under power of attorney must be especially cautious before making any gifts, and they should also make sure the power of attorney document specifically permits gifting before making any transfers. Doing otherwise could give rise to personal liability for the POA.
2. Residence transfers to a caregiving child.
A live-in child who offers caregiving that keeps a parent out of a nursing home may receive an exemption from transfer penalties associated with the gift of a residence within the 5-year look-back period if the following conditions are met:
- The individual served as the parent’s caregiver
- The individual served for at least two years immediately prior to nursing home placement or for two years while receiving Medicaid funded home- and community-based services through the waiver program
- The caregiver resided in the home during the 2 year time period
- The individual provided a level of care that helped keep the parent out of a nursing home
Documentation of the above facts is critical to avoiding the transfer penalties of the 5-year look-back if transferring your home to a caregiver child. In our office, we confirm eligibility with the PA Department of Human Services before any deed transfer so we have certainty of outcome and can be sure to avoid triggering Medicaid penalties.
3. Residence transfers to a sibling.
You can also transfer ownership of your residence to a sibling, provided he or she is a part-owner of the property (or has another equity interest in the home) and lived there for at least one year immediately prior to nursing home admission. The exception can also apply when in-home care is provided through a Medicaid-funded waiver program. There is pre-planning that should be done to make sure this exception can be used when needed, so contact us with questions. This exception to the 5-year look-back can protect the home from loss to nursing home costs (notably Pennsylvania’s Medicaid Assistance Estate Recovery Program) and have the added benefit of reducing or avoiding inheritance tax for the surviving sibling, depending on the facts of your case. For reference, the inheritance tax on assets passing between siblings in PA is 12%.
4. Certain gifts or transfers of assets for disabled children.
A disabled child may receive certain gifts without violating Medicaid’s transfer rules, even if the gifts are made within the five-year lookback. In some cases, these gifts or transfers can be “outright,” but in other cases, they should instead be made to a trust for the sole benefit of the disabled child in order to preserve means-tested benefits the disabled individual may already receive, such as Supplemental Security Income (SSI) or Medicaid. These trusts are sometimes referred to as “supplemental needs trusts” or “third-party special needs trusts.”
5. Gifts of assets to sole benefit trusts for other disabled individuals.
It is also possible in some cases to transfer assets to a trust for the sole benefit of other disabled persons besides one’s own children. We do not see this often, but it can be possible and is an allowable way to avoid the transfer penalties of the 5-year look-back.
The key difference with gifts to disabled individuals who are not your children is that the gift must be made to a trust for the sole benefit of that disabled person, and the gift cannot be made “outright.” This could be helpful for gifting to a disabled grandchild or to a disabled niece or nephew, for example.
Meeting Medicaid Disclosure Requirements
Failure to disclose gifting is not a permissible way to avoid the 5-year look-back. The agency is adept at reviewing financial records, and they will ask questions whenever they suspect more information is required.
All of the above transfers are exempt from the transfer penalties and are fully disclosed to the PA Department of Human Services during the application process if the transfers fall within the 60 months prior to the filing of an application for Medicaid long-term care benefits.
If you need to apply for Medicaid benefits now, you may realize gifts occurred within the look-back that you fear may cause problems during the Medicaid application process. In another article, we will discuss what to do when gifts have already occurred and you think it’s too late. There may still be help our office can provide to reduce or eliminate the Medicaid transfer penalty in your case. Give us a call and we’ll see what we might be able to do to help.
If you need guidance and would like to schedule a consultation, please contact Gerhard & Gerhard, PC to discuss your options.
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Disclaimer: We recommend that you have ongoing legal advice from an elder law attorney before attempting to navigate the Medicaid application process. If you wish to secure our services, please contact Gerhard & Gerhard, P.C.
