How Does the Five-Year Look-Back Period for Medicaid Work?
Medicaid’s five-year look-back period for gifts is a source of confusion to many when planning for long-term care. To start, Medicaid defines a gift as any transfer for less than fair market value.
When applying for Medicaid benefits, Medicaid looks five years from the date of application into the past to verify whether assets have been given away. If the applicant has made gifts during those five years leading up to the application, Medicaid imposes a penalty where they will not pay for long-term care.
For example, let’s say you made a gift to your child of $100,000 on January 1, 2012. Under the present Medicaid rules, if you apply at any time on or before January 1, 2017, Medicaid will consider the amount you gave to your child as an improper transfer. But if you wait until January 2, 2017, Medicaid will not count the gift nor impose a penalty.
When making gifts, timing is everything. Strategic planning after retirement can help isolate your exposure for long-term care costs. The sooner you start a five-year period with respect to a gift, the sooner it will end and the more likely it is that you can avoid penalties for trying to protect your wealth.
We can help you determine when it is appropriate to make gifts and how to structure them in connection with long-term care planning. If you need help in this area, or would like to discuss the opportunities available, please contact us.