Memo - Medicaid Look Back Period - Plan Now, Not Later

I get so many calls like this:

“Chris, if my elderly parent suddenly needs to go into a nursing home, how can I protect their assets?”

“Chris, what is the Medicaid Look Back period?”

Before the memo, a disclaimer:

This document does not constitute legal advice but is meant for educational purposes only. Chris Whalen, CPA and employees do not practice law. Please discuss your individual facts and circumstances with an experienced elder law attorney. If you need a referral, we will be happy to help provide one to you.

1. The look-back period. The Deficit Reduction Act of 2005 (“DRA”) increased the look-back period from 36-months to 60-months. The purpose of the look-back period is to invoke a penalty, whereby Medicaid will not pay for your care, if there is a transfer of assets for less than fair market value. All transfers during the look-back period are aggregated. The result is then divided by the average cost of a semi-private room in a nursing home, which is approximately $13,000.00. For example, a Medicaid applicant transferred $26,000.00 to her son during the look-back period. The penalty would be 2-months. This means that other sources have to be used to pay for the applicant’s care as Medicaid will not pay during that 2-month period. Medicaid will start to pay the 3rd month. Although you can transfer $14,000 (currently) per year for gift tax purposes without having to file a gift tax return, that exclusion is for tax only. For Medicaid, you are not allowed any gifts.

2. Its never too late to plan. Even though there is a 60-month look back period, there are legal techniques that can be employed to accelerate eligibility for Medicaid and preserve some assets for the family. It is incorrect to think that nothing can be done if you are within the 60-month look back period.

3. Lessen the importance of your Will. With the DRA, Congress encouraged states to seek estate recovery for Medicaid benefits paid. Upon a Medicaid beneficiary’s death, the executor/administrator will receive a one-page questionnaire from the state. The state uses the questionnaire to determine whether it will seek estate recovery by putting a lien on the deceased Medicaid beneficiary’s estate. As such, in addition to accelerating eligibility for Medicaid, it is important that there are no assets in the Medicaid recipient’s estate upon passing for which a lien can be levied.

Finally, it is important to review your durable power of attorney (“DRA”). It must allow for your agent to undertake Medicaid planning on your behalf if you should become incapacitated. If you do not have a DPOA, it is strongly recommended that you obtain one as well as a healthcare power of attorney and if you so choose, a living will.

4. Irrevocable Trusts. In order for a properly drafted irrevocable trust to work, the assets transferred to the trust must be outside of the 60-month look back period. Since the transfer would be for less than fair market value, there could be penalty imposed by Medicaid should the grantor/settlor need to apply for Medicaid during the 60-months that includes the establishment and funding of the trust.

5. Be wary of Medicaid advisors. There are non-attorney businesses that assist in the preparation and filing of a Medicaid application. In May of last year, NJ was the fourth state to rule that providing any Medicaid advice by a non-attorney is the illegal practice of law. Recently, the Division of Consumer Affairs issued a warning on this topic. Follow this link: http://www.njconsumeraffairs.gov/News/Consumer%20Briefs/medicaid-advisors-application-assistors.pdf

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