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Medicaid’s Look-Back Period Explained
When a senior is applying for long-term care Medicaid, whether that be services in one’s home, an assisted living residence, or a nursing home, there is an asset (resource) limit. To be eligible for Medicaid, one cannot have assets greater than the limit. Medicaid’s look-back period is meant to prevent Medicaid applicants from giving away assets or selling them under fair market value to meet Medicaid’s asset limit.
All asset transfers within the look-back period are reviewed. If an applicant has violated this rule, a penalty period of Medicaid ineligibility will be established. This is because had the assets not been gifted, sold under their fair market value, or transferred, they could have been used to pay for the elderly individual’s long-term care. If one gifts or transfers assets prior to the look-back period, there is no penalization.
The date of one’s Medicaid application is the date from which one’s look-back period begins. In 49 states and D.C, the look back period is 60 months. In California, the look back period is 30 months.
As an example, if a Florida resident applies for Medicaid on Jan. 1, 2022, their look-back period extends back 60 months to Dec. 31, 2016. All financial transactions during that timeframe will be subject to review.
Examples of transactions that could result in a penalty include money gifted to a granddaughter for her high school graduation, a house transferred to a nephew, collectors’ coins sold for half their value, or a vehicle donated to a local charity. Even payments made to a personal care assistant without a formal care agreement or assets that were gifted, transferred, or sold under fair market value by a non-applicant spouse can violate the look-back period and result in a period of Medicaid ineligibility.
Even after the “initial” look back period, if a Medicaid beneficiary comes into some money, say for example, via an inheritance, and gives all (or some) of the money away, they are in violation of the look back rule. Said another way, despite an initial determination that one has not violated the 60-month (or 30-month in CA) look back period and is receiving long-term care Medicaid, they can violate this rule, and hence, be disqualified from Medicaid benefits.
For Which Medicaid Programs is Look-Back Relevant
Medicaid offers a variety of programs and the look-back period does not necessarily apply to all of them. This article is focused on elderly care and Medicaid benefits for long-term care. These programs consider the Medicaid look-back period. If one is applying for nursing home Medicaid or for a Home and Community Based Services (HCBS) Medicaid Waiver, the state’s Medicaid governing agency will look into past asset transfers.
Medicaid programs such as those for pregnant mothers and newborn children do not have a look-back period.
How Look-Back Varies by State
While the federal government establishes basic parameters for the Medicaid program, each state works within these parameters as they see fit. All 50 states do not have the same rules for their Medicaid programs nor do they have the same rules for their look-back period. In 2022, every state but California has a Medicaid Look-Back Period of 60 months (5 years). California has a much more lenient look-back period of 30 months (2.5 years).
The “penalty divisor”, which is used to calculate the penalty for violating the look-back period, also varies by state. It is tied to the average cost of nursing home care in the state. A state may use a daily or monthly average penalty divisor. See state-specific penalty divisors here.
Some states may not implement the look-back period for community / in-home care. While New York has a 60-month look back period for nursing home Medicaid, the state does not have a look back period for Community Medicaid, which provides long-term home and community based services. The state, however, plans to implement a 30-month look back period. This change will take place no earlier than March 31, 2024.
An exception for small gifts might be made in some states. Pennsylvania is one such state and allows Medicaid applicants to gift as much as $500 / month without violating Medicaid’s look-back period.
The Medicaid look-back period is complicated, especially since the rules that govern it vary by state. It is recommended one contact a professional Medicaid planner to learn more about the Medicaid look-back period in the state in which one resides.
Unintentional Violations of Look-Back Rules
IRS Gift Tax Exemption – The IRS allows an annual estate and gift tax exemption. In 2022, an individual in the U.S. can gift up to $16,000 per recipient without paying taxes on the gift(s). However, this federal tax exemption does not extend to Medicaid’s rules. This means if one gifts $10,000 to a daughter or son, this gift is not exempt from Medicaid’s look-back period. Remember, even a cash gift to a family member for graduation can violate the look-back rule. Furthermore, the rules that govern gifting vary by state, further complicating this possible violation. More on the IRS gift tax exemption.
Lack of Documentation – Not having sales documentation for assets sold during the look-back period can result in a violation of Medicaid’s look-back rule. While the assets may have been sold for fair market value, if documentation is not available to provide proof, it may be determined the look-back period was violated. This is particularly relevant for assets, such as automobiles, motorcycles, and boats, that have to be registered with a government authority.
Irrevocable Trusts (also called Medicaid Qualifying Trusts) – One might assume that these type of trusts are exempt from Medicaid’s look-back period, but this is not always true. The term, Medicaid Qualifying Trust, can create confusion, as the name suggests it is used to qualify for Medicaid. Unfortunately, if the trust was created during the look-back period, it is considered a gift, and therefore, a violation of the look-back period. In simple terms, a Medicaid Qualifying Trust is a legal arrangement where assets are transferred from an individual, called the grantor, to a third party, called the trustee. The trustee becomes the owner of the assets and holds them for the named beneficiary. A variety of assets can be transferred via a trust and may include a Certificate of Deposit (CD), stocks, property, cash, and annuities. The term, irrevocable, means that the grantor cannot amend or cancel the trust.
Paying a Family Member to Provide Care – While it is acceptable under Medicaid rules to pay family members for providing care, doing so without proper legal documentation and caregiver agreements is a very common cause of Medicaid penalties. More information is provided below on how to do this without breaking Medicaid’s rules.
Look-Back Rule Exceptions & Loopholes
There are several exceptions and loopholes to Medicaid’s look-back rule. Certain transfers can be made without violating Medicaid’s look-back period. These exceptions allow asset transfers without fear of penalty. To ensure they are done correctly and to avoid penalization, it is highly recommended one consult with a Medicaid planning professional prior to making any asset transfers.
Joint Assets of a Married Couple
For Medicaid eligibility purposes, all assets of a married couple are considered jointly owned and are calculated towards the asset eligibility of the applicant spouse. However, a portion is allocated to the non-applicant (community) spouse in order to prevent spousal impoverishment. This is called the Community Spouse Resource Allowance (CSRA), and in 2022, may be as much as $137,400. The federal government sets this figure, and states may elect to use a lower figure. For example, South Carolina has a maximum CSRA of $66,480.
The way the CSRA is calculated varies based on the state. Each state is either a 50% or 100% state. In 50% states, a community spouse can keep half of the couple’s joint assets, up to $137,400. Therefore, if a couple has $200,000 in assets, $100,000 is said to belong to the applicant spouse and $100,000 to the non-applicant spouse. The non-applicant spouse can keep $100,000, while the applicant spouse is generally only able to retain $2,000. In a 100% state, a community spouse can retain 100% of the couple’s assets, up to the allowable $137,400, or in South Carolina, up to $66,480. Therefore, if a couple has $120,000 in assets in a state that has a maximum CSRA of $137,400, the non-applicant spouse is entitled to all $120,000 in assets. This is an oversimplified explanation of calculating the CSRA. To learn more, click here. To see CSRA and applicant asset limits by state, click here.
When there are excess assets, they must be “spent down” in order to meet Medicaid’s asset limit for qualification. It is not unusual that they be spent on the cost of long term care, whether that be nursing home care or in-home care, until the asset limits are met. Other ways in which excess assets can be “spent down” are discussed further below in this article.
Asset Transfers to Minor Children
Transfers for the benefit of one’s child(ren), given they are under 21 years old, disabled, or legally blind. In addition to the transfer of assets, this includes the establishment of trusts.
Asset Transfer of a Home
One’s home can be transferred to a sibling if they are part owner of the home and lived there a minimum of one year prior to the Medicaid applicant’s nursing home admission. This is called the sibling exception. There is also a caregiver child exemption, which allows one’s home to be transferred to an adult child who served as a caregiver for their parent(s). The adult child must have been the primary caregiver of their aging parent(s) for a minimum of 2 years immediately preceding the parent(s) relocation to a nursing home or assisted living residence. The adult child must have lived in the home and provided a level of care that prevented them from having to relocate to one of these facilities.
What to Do When You’ve Violated Medicaid’s Look-Back Rules?
If one is in the unfortunate position of having violated Medicaid’s look-back period, there are ways to still gain Medicaid eligibility. Usually the best course of action is to work with a professional Medicaid planner. This is a precarious situation, and if not handled correctly, will result in a penalization period.
If one has gifted assets or transferred them for under fair market value and is able to recuperate the assets, the penalization period will be reconsidered. Therefore, if there has been any violation of the look-back period, it is extremely important to try to recover all assets. In some states, all assets transferred must be recuperated or the penalization period will remain the same. Other states might allow for partial recuperation of assets and adjust the penalty period accordingly.
Undue Hardship Waiver
If one has tried to recover assets they have gifted or transferred, but were not able to do so, they can apply for an undue hardship waiver. The Medicaid applicant must prove recuperation of assets failed, and if not granted Medicaid benefits, they will face significant hardship. This means they won’t be able to provide food, clothing, or shelter for themselves. It is very hard to be granted an undue hardship waiver unless it is very clear that the individual will suffer significant hardship without it.
Spend Down Assets Without Violating the Look-Back Period
There are ways for one to spend down excess assets without violating Medicaid’s look-back period. While the following strategies are all options, the look-back period is extremely complicated. Therefore, it is highly recommended one contact a professional Medicaid planner prior to using one of the following strategies. Read more.
Life Care Agreements
Life care agreements, also called caregiver agreements or elder care agreements, are a great way for seniors who require a caregiver to spend down extra assets without violating Medicaid’s look-back period. In simple terms, caregiver agreements, which generally last for the duration of the care recipient’s life, are legal contracts between a caregiver, often a relative or close friend, and an elderly individual who requires care. Often life care agreements remain in effect even after the senior care recipient moves into a nursing home, as the caregiver can serve an advocate role for the senior. The contract needs to include the date care services are to begin, the type of care that will be provided, such as personal care assistance, light housecleaning, and preparation of meals, the frequency / hours the care will be provided, and the rate of pay. The pay rate must be reasonable for the area in which one lives. If it is not, it may violate the look-back period. Life care agreements should make it very clear that payments to a caregiver are not gifts. It is best to have supportive documentation, such as a log of executed caregiving duties, the days and number of hours worked, and written invoices for payment.
Medicaid Exempt Annuities
Medicaid exempt annuities, sometimes called Medicaid compliant annuities, are another way one can spend down assets without violating Medicaid’s look-back period. Annuities convert a lump sum of cash into a monthly income stream for the Medicaid applicant or their spouse. This effectively lowers one’s countable assets for Medicaid eligibility. Annuity payments can be for the duration of the recipient’s life or for a set period. Each state has its own rules for Medicaid annuities and not all annuities are Medicaid compliant. Deferred annuities, in which payments are delayed until a future date, violate Medicaid’s look-back period. When considering an annuity, one must proceed with caution.
Paying Off Debt
Paying off debt, such as a mortgage or credit cards, does not violate Medicaid’s look-back period and effectively lowers one’s assets.
Assets can be used for home modifications and reparations without violating the look-back period. This includes replacing old plumbing systems, updating electrical panels, adding first floor bedrooms and / or bathrooms, installing wheelchair ramps, chair lifts, widening doorways to allow wheelchair access, and replacing carpet with more wheelchair friendly surfaces.
Irrevocable Funeral Trusts
Irrevocable funeral trusts, which pay for funeral and burial costs in advance, provide a way to spend down excess assets without violating Medicaid’s look back rule. The term, “irrevocable”, meaning the trust cannot be changed or terminated, is extremely important, as funeral trusts that are revocable violate the look back rule. More.