Mary was concerned that she would soon need nursing home care. She did not want her funds used up in long-term care expenses, so she gave her only son, Joe, her life savings of $100,000. One year after giving Joe the money, Mary experienced a major health crisis and needed to move into a nursing home. She no longer had money because she gave it to Joe. When she applied for Medicaid she answered yes (as she was required to do) to the question about giving money away within the prior five years. She also signed the required financial release form that allows Medicaid to look into her bank account history. Soon after, Mary received notice that she was denied Medicaid benefits because of the transfer to Joe. Even so, we could have helped Mary correct this problem and still be eligible for Medicaid benefits.
When the Deficit Reduction Act of 2005 was signed into law, it required states that partner with the federal government’s Medicaid program to require a five-year lookback on uncompensated transfers. This simply means that if a person applies for Medicaid, the state must ask if the applicant had given away money in the previous five years. If the person did give away money, the state can deny Medicaid services for a period of time that depends upon how much was given away, who it was given to, and for what purpose.
While Mary did not have a long time period between gifting and needing care, some people do. In hoping to protect assets for Medicaid purposes, they may expect to wait at least the full five years. Those people can use planning and gifting tools – such as irrevocable trusts – to protect their assets. This is often safer than gifting outright to children, but such planning should take into consideration many different issues that could arise from gifting.
As a side note, we find that many people mistakenly believe even with the lookback period, they can give $14,000 (in 2017). This kind of gifting is not a Medicaid allowance, but rather an IRS estate tax rule. According to IRS, you can give up to that amount to another individual in a given year without having to file a gift tax return. That rule has nothing to do with Medicaid laws and rules because both fulfill very different purposes.
The Five-Year Lookback can be a confusing issue, but solutions can be found most of the time. Not all uncompensated gifts are bad. Medicaid rules allow for gifts in certain circumstances and to specific people. The rules also allow for asset protection in a variety of ways. Before giving a gift to protect assets, it is best to obtain the advice of a qualified elder law attorney. Our office provides asset protection consults to help people determine the best option for them. We are often able to help people protect assets even within the five year lookback period.