Individuals must meet the threshold requirements of limited income and assets to receive federal assistance through the Medicaid program for nursing home care, assisted living, or in-home care. Because of these rules, Medicaid applicants often make the mistake of simply giving away their money and resources in an attempt to qualify. However, there is a “look-back period” before the individual’s application can be accepted, during which time the Medicaid administering agency reviews all individual financial transactions. Transactions in violation of the look-back rules will result in a penalty in the form of time, where the applicant becomes ineligible for Medicaid. To determine the penalty period, Medicaid takes the dollar amount of assets transferred for less than fair market value (gifted) and divides it by the daily private patient rate of nursing home care or the average monthly private patient rate.
In this column, I highlight a number of common mistakes made by individuals who find themselves assessed with a penalty period for transactions that occurred within five years preceding their Medicaid application. In my next column, I discuss strategies to transfer wealth in a manner that complies with Medicaid regulations and avoids the imposition of a penalty period.
While there are certain look-back exceptions and exemptions, these rules are very often misunderstood by individuals without training and experience in Medicaid planning. As a result, common mistakes and violations occur as a result of improper gifting:
Gifts – The federal government’s annual gift tax exclusion amount per recipient is $16,000 in 2022 via the estate and gift tax exemption. The federal government’s annual gift tax exclusion has nothing to do with the Medicaid analysis of gifting. More directly: MEDICAID DOES NOT CONSIDER THESE TRANSACTIONS EXEMPT FROM ITS LOOK-BACK PERIOD.
Lack of Documentation – If you transact an asset and receive a value equal to the fair market value without proper documentation, you may violate the rules of the look-back period. This situation is particularly relevant for assets with a government record like boats, motorcycles, or vehicles because of their registration requirements.
Irrevocable Trusts – Many individuals incorrectly assume creating and funding an irrevocable trust exempts the trust assets the look-back period. Creating an irrevocable trust during the look-back period is considered a gift and a countable asset. Irrevocable trusts created before the look-back period are not countable assets.
Understanding the nuances of gifting and Medicaid rules is crucial to successful planning. Call 570-784-4654 to schedule an appointment with one of our Certified Medicaid Planners.