The Five Year Look-Back, pertains to an application for Medicaid. Medicaid is a Federal program that is administered by the individual states. Its purpose is to pay the medical bills of the indigent. Medicaid also pays for nursing home care when an elder has less than two thousand dollars. Medicare does not pay for nursing home care.
Medicaid and the Five Year Look-Back
When one applies for Medicaid benefits, Medicaid will look at all financial records from the prior five years. All of your bank statements, investment account statements, real estate sale information, and the like will be reviewed. This is called the “Five Year Look-Back”. Medicaid will examine these documents and transactions to determine if any assets were gifted to others, for the purpose of deliberately impoverishing the elder, and then qualifying for benefits. Some county social service offices will review everything over five hundred dollars, others everything over one thousand dollars. If it appears that gifts were made, the applicant will be penalized.
What This Might Mean to You
Many times, children will ask a parent to transfer the house into their names, so that “the State doesn’t take it”. Aside from a capital gains issue, if this transfer is made within the five-year look-back, the parent will be denied benefits for many months, maybe years. And, by the way, the State never “takes” the house.
Another issue is the current $14,000.00 gift tax exclusion. One can gift up to $14,000.00 to as many people as they wish, during this calendar year, and not have to file a federal gift tax return. While this is true for purposes of the gift tax, it does not mean that an elder facing nursing home care can make these gifts during the five year look-back period and then claim poverty. The elder will be disqualified for benefits for some period of months.
Once the Medicaid office determines the total amount of improper transfers, it will divide the total by the Penalty Divisor. The Divisor changes from year to year. It is supposed to represent the average cost of nursing home care in the state. In 2017, the Divisor is $423.95 per day, or $12,895.15 per month. By this formula, Medicaid will determine the number of penalty months. The penalty will begin when the elder is otherwise eligible for Medicaid, and it will run for the number of months determined. During this time, the elder has no money to pay for his or her care, and other sources, such as the family members who received the gifts, will have to pay. If this does not happen, someone may need to take the elder home and provide care, or apply for a hardship waiver under appropriate circumstances. This is the import of the five year look-back period.
There are some transfers permitted by the Medicaid during the five year look-back period. But these are few and are very fact and time sensitive. In order to properly make these transfers, you will need the help of a qualified elder law attorney. Shanahan & Voigt has been meeting with clients and walking them through the Medicaid minefield for decades. If you have an elder who has nursing home care in their future, it is important that you meet with us as soon as possible.