The Five-Year Look˗back and What It Means for You
Many seniors have heard of the mysterious “five̠˗year look˗back period,” but very few understand what impact it has on their long-term care planning. The only seniors who need to be concerned with the five-year look˗back are those who will need to use Medicaid to pay for some or all of their skilled nursing needs. Medicaid, unlike Medicare, is a means-based program, which means that you are only eligible for it if you have very few assets. The government does not want you to transfer all your assets on Monday in order to qualify for Medicaid on Tuesday, so it has imposed a penalty on people who transfer assets without receiving fair value in return.
In order to identify who has transferred assets, states require a person applying for Medicaid to disclose all financial transactions he or she was involved in during the five years before the Medicaid application. This five-year period is known as the "look-back period." The South Carolina Department of Health and Human Services (SCDHHS), which administers the Medicaid program, then determines whether the Medicaid applicant transferred any assets for less than fair market value during this period.
Any transfer can be scrutinized, no matter how small. There is no exception for charitable giving or gifts to grandchildren. Informal payments to a caregiver may be considered a transfer for less than fair market value if there is no written agreement. Similarly, loans to family members can trigger a penalty period if there is no written documentation. The burden of proof is on the Medicaid applicant to prove that the transfer was not made in order to qualify for Medicaid.
Transferring assets to certain recipients will not trigger a period of Medicaid ineligibility even if the transfers occurred during the look-back period. These exempt recipients include the following:
A spouse (or a transfer to anyone else as long as it is for the spouse's benefit)
A blind or disabled child
A trust for the benefit of a blind or disabled child
A trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances).
In addition, special exceptions apply to the transfer of a home. The Medicaid applicant may freely transfer his or her home to the following individuals without incurring a transfer penalty:
The applicant's spouse
A child who is under age 21 or who is blind or disabled
Into a trust for the sole benefit of a disabled individual under age 65 (even if the trust is for the benefit of the Medicaid applicant, under certain circumstances)
A sibling who has lived in the home during the year preceding the applicant's institutionalization and who already holds an equity interest in the home
A "caretaker child," who is defined as a child of the applicant who lived in the house for at least two years prior to the applicant's institutionalization and who during that period provided care that allowed the applicant to avoid a nursing home stay.
If the SCDHHS determines that a Medicaid applicant made a transfer for less than fair market value, it will impose a penalty period. This penalty is the number of months during which the person transferring the assets will be ineligible for Medicaid. The penalty period is determined by dividing the amount transferred by what Medicaid determines to be the average private pay cost of a nursing home in your state.
If you desire to transfer assets or have transferred assets within the past five years and are planning on applying for Medicaid, please consult an elder law attorney to find out if there are any steps you can take to prevent incurring a penalty.