In all states, there is a Look-Back Period for Medicaid long-term care applicants. This is a period (generally 60 months), in which the Medicaid agency scrutinizes the applicant?s and their spouse?s financial transactions to ensure no assets were gifted or sold under fair market value. Persons who make such transfers are penalized with a period of Medicaid ineligibility. The Look-Back rules are complicated, and it is estimated that as many as 25% of applicants inadvertently violate them. Fortunately, with proper planning, these violations can be corrected, and applicants can still qualify for long-term care Medicaid. However, it is vital that applicants be aware of any violations prior to applying or they may be penalized.
Medicaid limits the amount of assets a senior can have to qualify for Medicaid long-term care. While the asset limits change by state and marital status, in most states, a single senior is limited to $2,000 in assets. Medicaid?s Look-Back Period is intended to prevent seniors from ?gifting? assets to meet Medicaid?s asset limit. However, in all states, there are ways to preserve assets for spouses and other relatives without violating Medicaid?s Look-Back Period. These planning strategies are complicated, as are the Look-Back rules, and therefore, professional assistance should be considered.
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1) The Look-Back Varies in Length and with the Type of Medicaid Program
The Look-Back Period is relevant for Nursing Home Medicaid and Home and Community Based Service (HCBS) Waivers. It does not apply to a state?s Regular Medicaid program, which for seniors, is often called Aged, Blind and Disabled (ABD) Medicaid. However, it is still vital that these applicants avoid gifting assets to reach Medicaid?s asset limit. This is because should the need for Nursing Home Medicaid or home and community based services via a Medicaid Waiver arise, they could still be in violation of the Look-Back Period.
In 49 states and the District of Columbia, the Look-Back Period is 60 months (5 years). For California Medicaid (Medi-Cal), the Look-Back Period is only 30 months. Another exception exists for New York. While the state has a 60 month Look-Back Period for Nursing Home Medicaid, there currently is no ?look back? for Community Medicaid, the program through which long-term home and community based services is provided. While a 30 month Look-Back Period will be implemented, the soonest this will happen is March 31, 2024.
Regardless of state, the Look-Back Period starts on the date in which one applies for long-term care Medicaid. For example, if a senior submits his Nursing Home Medicaid application on March 7, 2023 in a state with a 60 month Look-Back Period, that state?s Medicaid office will review the applicant?s financial history going back to March 7, 2018. As another example, if a California senior submits their HCBS Waiver application on August 1, 2023, the state will look into their financial history dating back to February 1, 2021.
2) Allowed and Prohibited Spending and Selling During the Look-Back Period
The ways in which one can spend their assets is restricted during Medicaid?s Look-Back Period. Fortunately, for persons who have assets over Medicaid?s asset limit, there are ways in which one can reduce their countable assets without violating Medicaid?s Look-Back Rule. The applicant and their spouse can purchase clothing, personal items, and household appliances / furnishings, pay their medical expenses and long-term care, pay off existing debt, or trade in their car for a newer or larger one.
What they cannot do is ?gift? assets, such as paying their healthy adult child?s medical expenses, paying their grandchild?s college tuition, or making donations (i.e., cash, car, property) to a charity. Nor can they sell countable assets, such as a vehicle or vacation home, for less than fair market value. These transactions violate Medicaid?s Look-Back Period.
If an applicant sells any assets (i.e., vehicle, motorcycle, motor home, primary home) during the Look-Back Period, it is critical that they not only receive fair market value for the item, but that they legally document the sale. Without legal documentation to provide proof that the item was sold at fair market value, it may be a violation of the Look-Back Rule. The same idea applies to paying informal caregivers. All caregiver payments should be legally documented and a formal Personal Care Agreement drawn up so that payments are not thought to be ?gifts?.
While the IRS allows an annual Gift Tax Exemption, which in 2023, allows one to gift $17,000 per recipient without filing a gift tax return, this exemption does not extend to Medicaid. Gifting cash or any other assets (stocks, bonds, certificates of deposit, retirement accounts, real estate, etc.) is not allowed during the Look-Back Period.
It is also important to understand that, despite its name, a Medicaid Asset Protection Trust, is not exempt from the Look-Back rules. While this kind of trust can be used to preserve the resources of a Medicaid beneficiary, it violates Medicaid?s Look-Back Period if purchased during the ?look back?.
Permitted Financial Transactions During the Look-Back Period
? Purchasing personal items, household furnishings, and home appliances for yourself or spouse.
? Making home improvements, repairs, and modifications
? Selling assets at fair market value with appropriate documentation
? Caregiver payments for a reasonable amount with a formalized caregiver agreement
Prohibited Financial Transactions During the Look-Back Period
? Gifting cash or other countable assets
? Selling countable assets under fair market value
? Purchasing investments – i.e., expensive jewelry and artwork
? Informal caregiver payments without a formal caregiver agreement
? Charitable Donations
? Loans to friends or family without written documentation
? Medicaid Asset Protection Trusts
3) Married Couples: Protecting Assets (and Income) for a Spouse
All assets of a married couple are considered jointly owned when it comes to Medicaid eligibility. However, when one spouse applies for Nursing Home Medicaid or a Medicaid Waiver, and the other spouse is not applying, the couple has greater flexibility in keeping and allocating their assets, even during the Look-Back Period.
In 2023, the Community Spouse Resource Allowance (CSRA) allows the non-applicant spouse (also called the community spouse) to keep as much as $148,620 of the couple?s combined assets. That dollar figure is the maximum amount set by the federal government and it changes each year. Some states have lower maximum CSRAs, like Illinois, which is $109,560.
Relevant to the CSRA, there are 50% states and there are 100% states. In 50% states, the non-applicant spouse can keep 50% of the couple?s assets up to their state?s maximum CSRA, generally $148,620. In 100% states, the non-applicant spouse can keep 100% of the couple?s assets up to their state?s maximum CSRA. The table below illustrates how different asset amounts would be allocated in 50% states vs. 100% states.
|2023 Medicaid Community Spouse Resource Allowance
|Couples? Combined Assets
|Amount the ?Community Spouse? keeps in a 50% State
|Amount the ?Community Spouse? keeps in a 100% State
While income is not relevant to the Look-Back Period, it is worth mentioning that an applicant spouse can allocate a significant amount of income to a non-applicant spouse to prevent them from becoming financially impoverished.
4) Preserving Resources During the Look-Back Period
Medicaid applicants do not have to spend all of their assets to reach Medicaid?s asset limit. There are certain financial tools and allowable transfers that enable seniors to lower their countable assets while saving some resources for their family, and even for themselves, during the Look-Back Period.
Purchasing a Medicaid-compliant annuity with a lump sum of cash not only reduces a senior?s countable assets, it also provides a monthly income for oneself or their spouse. The annuity is purchased from a financial company, and the company then returns that money to the senior or their spouse in the form of monthly payments over the life of the annuity. While annuity?s can help persons reach Medicaid?s asset limit, annuity payments are counted as income for Medicaid applicants. It also should be noted that not all annuities are allowed by Medicaid, and purchasing an annuity that is not Medicaid-compliant during the ?look back? violates the Look-Back Period. More on annuities.
Irrevocable Funeral Trusts (IFTs), in which funds are set aside for funeral and burial expenses, provide another option of ?spending down? countable assets without violating Medicaid?s Look-Back Rule. While the maximum amount allowed varies based on the state, in many states, an applicant and their spouse are each allowed to have an IFT with up to $15,000. Just like with annuities, not all funeral trusts are Medicaid-compliant, so applicants need to be sure they are purchasing one that is allowed by the Medicaid agency in their state.
Allowable Asset Transfers
In addition to transferring assets to one?s spouse, there are additional asset transfers a Medicaid applicant can make without violating Medicaid?s Look-Back Period. This includes asset transfers to one?s child, given the child is a minor (under 21 years of age), disabled as determined by Social Security rules, or legally blind. This often includes establishing a Pooled Income Trust, Special Needs Trust, or another type of trust, although the rules involving trusts are state-specific.
There is also a Sibling Exemption and Adult Child Caregiver Exemption that allows one to transfer their primary home to their sibling or healthy adult child without violating Medicaid?s Look-Back Rule. For the Sibling Exemption, the sibling must be part owner of the home and lived there for a minimum of one year immediately preceding institutionalization of the Medicaid applicant. For the Child Caregiver Exemption, the adult child must have lived with their parent for at least 2 years immediately preceding their parent?s institutionalization, and during which, provided a level of care that prevented institutionalization.
5) Look-Back Violations, Penalties, and Recovery Strategies
If an applicant violates the Look-Back Period, they will be ineligible for Medicaid benefits for a designated period of time. This is called the Penalty Period. The length of ineligibility is calculated by dividing the dollar amount of the transferred/undersold assets by the average monthly or daily rate for nursing home care in the state where the applicant resides. This rate is the Penalty Divisor.
A senior gifted their grandchild $70,000 during the Look-Back Period. The state?s Penalty Divisor is $7,000 / month. The Penalty Period is 10 months ($70,000 ÷ $7,000 = 10 months).
A senior sold their house to a friend for $300,000 during the Look-Back Period. During the Medicaid application review process, the state determines the house was actually worth $500,000. The state where they reside has a Penalty Divisor of $200 / day. The Penalty Period is 1,000 days, or approximately 2.75 years. ($500,000 – $300,000 = $200,000 sold under fair market value. $200,000 ÷ $200 = 1,000 days).
Two more important notes on the Penalty Period:
? The Penalty Period starts on the day the applicant would otherwise be found eligible for long-term care Medicaid, had they not violated the Look-Back Rule.
? There is no maximum length for the Penalty Period.
Violating Medicaid?s Look-Back Rule does not necessarily mean one will have to undergo a period of Medicaid ineligibility. It is possible to have the Penalty Period reconsidered, and sometimes eliminated. This can happen if a Medicaid applicant can recover 100% of the transferred assets. Unfortunately, it may be difficult, or impossible, to get all of the gifted assets back, particularly if one gifted cash. However, even a partial return of assets in some states can result in reconsideration of a Penalty Period, and the length of Medicaid ineligibility may be shortened. Note that if assets were returned, this would likely push one over Medicaid?s asset limit. The Medicaid applicant would then have to ?spend down? assets in a way that does not violate Medicaid?s Look-Back Rule before they would be asset eligible for Medicaid.
There is also a Hardship Waiver, which is often a long shot, but allows the Penalty Period to be eliminated if it will cause one ?undue hardship?. This means the applicant would not have access to medical care without Medicaid, they have tried to get back all gifted assets (including taking reasonable legal avenues) with no luck, and if the Penalty Period were applied, the applicant?s health or life would be at risk due to not having access to medical care or they would not have the necessary means to live (i.e. food, clothing, and shelter).
While not a recovery strategy, in some cases, it may be best to for one to wait out the Look-Back Period rather than applying for long-term care Medicaid and being penalized with a Penalty Period. Since there is no maximum length of Penalty Period, ?waiting it out? might allow one to be Medicaid eligible more quickly.