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How does the Medicaid “look back” period and gifting penalties work?
When you apply for Medicaid, I wish it were as simple as filing application but Medicaid
actually has a right to be ruling nosy, they're called the payer of last resort and the burden
is on you to prove that you're eligible for assistance and part of that is if you file
that application, Medicaid has the right to go back 5 years from that date of application,
to see what you were doing with your money leading up to this application. And they get
to be really nosy and ask for a lot of information, they’ll ask for statements for every single
account you might have owned during that 5 year window so maybe you closed the account
2 years ago, you'll still have to go back and get those records for the prior years
before you close the account. They’ll ask about any real estate that you own, any automobiles,
life insurance, anything that you own they're going to want information about it. And the
reason they're being nosy is they’re going to go through all those information and they
want to know that you didn’t just go and give or transfer everything away so that you
can qualify for assistance. So when they're looking through that 5 year of records they
are looking for gifts or transfers or they're called uncompensated transfers, so you gave
something away and you didn’t get anything back. Usually a gift to a family member will
be a prime example. For any uncompensated account that they find in that 5 year window,
they're going to assess a penalty period, currently the divisor is $6,300 so what they're
saying is for every $6,300 that you give away that’s going to equate to 1 month penalty.
So if I were to go through my 5 years of records and it turns out I gave away $63,000, they're
going to take that $63,000 and divide it by $6,300 and say I have a 10 month penalty and
what that penalty means is they say, “Well, we see that you’re in the nursing home and
we see that you would have qualified for assistance if it weren’t for the fact that over the
5 past years you made some of these transfers. If you're in the nursing home and you're otherwise
eligible that’s when the penalty starts. So they're saying now you're in the nursing
home, you're below $2,000 in the bank and you have to figure out a way to pay for care
for 10 more months before we’re going to start helping you. This is why we always caution
people not to engage in gifting for Medicaid purposes without working with an elder law
attorney because you're going to get yourself into a pickle really quickly. A common example
is the IRS allows people to gift $14,000 per year free or gift tax. So a lot of people
heard about that rule, their CPA might even mention that a tax is in and what they don’t
realise is that that’s what the IRS lets you do but that’s not what Medicaid lets
you do. Medicaid would still call those gifts, so you want to be careful about making any
major gifts or transfers to family members unless you're working with an elder law attorney
on an overall long-term care plan sometimes we might intentionally make some gifts or
transfers but it’s usually a part of a bigger overall plan and we know how we’re going
to handle that penalty period if it becomes an issue.