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Understanding the Medicaid look-back period

The average life expectancy in the U.S., according to 2015 figures from the World Health Organization, is 79.3 years. That's up nearly 20 years from 1930. And while that's good news - everyone wants to live longer - long-term health care becomes a much more likely necessity.

Medicaid - a government-run social healthcare program for those with limited resources - will pay for long-term care once a person's assets and funds are used up. If you have, say, $100,000 in savings, you are expected to use that to pay for your long-term care. When those funds are gone, you can then apply for Medicaid benefits.

Understandingly, elderly people who want to leave an inheritance to their children do not want that inheritance eaten up by health care costs. Is there a way to protect that money and keep it safe for heirs?

The Look-Back Period

An article in Forbes points out that you can protect your assets by gifting them to your heirs. In 2016, federal law allowed individuals to gift up to $14,000 in a year without having to pay taxes on those funds. However, the government does not want a person to go into a nursing home on Monday, gift their money on Tuesday and apply for Medicaid on Wednesday. Hence, the look-back period.

When you apply for Medicaid, any gifts or transfers you've made in the past five years are subject to a penalty. The penalty is not money, but a period of ineligibility. This period is determined by dividing the amount of money gifted or transferred by what Medicaid determines to be the average cost of a private nursing home in your state.

For example, if the average monthly nursing home cost is $7,000 and you have gifted $50,000 within the past five years, you are ineligible for a period of about seven months (50,000 / 7,000). In other words, every $7,000 gifted or transferred equals a month of ineligibility, according to Elder Law Answers.

However, the penalty can be removed if the gifted or transferred funds are returned, or reduced if they are partially returned.

Exceptions To The Rule

There are a few exceptions to this look-back period. Transfers to certain recipients can be made without incurring a penalty, including:

  • Transfers to a spouse
  • Transfers to a blind or disabled child
  • A trust to benefit a blind or disabled child
  • A trust for the sole benefit of a disabled individual under age 65

The Bottom Line: Plan Ahead

Clearly, planning strategies related to Medicaid and long-term care should be put in place long before care is actually needed. Since people are living into their 80s and 90s, it's not unrealistic to think that you may need long-term care at some point in the future.

By preparing ahead of time, you can help protect your inheritance for your loved ones. Get the personalized estate planning help you need by talking with a skilled attorney.

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