Nov 2014

What Is the Medicaid Five-Year Look-Back Rule?

Estate Planning and Medicaid

As the first wave of Baby Boomers pass retirement age, there is increased public awareness regarding the need to plan for long-term care. A big component of this estate planning includes the possibility of needing assistance from Medicaid. Many people are unfamiliar with Medicaid and what is required to qualify. As a result, they fail to qualify when they need it – and they delay planning for it until it is too late.

In 2005, the federal government attempted to reduce federal spending by passing the Deficit Reduction Act. Medicaid’s Five-Year Look-Back Rule was part of this reform, which was designed to reduce the amount of federal funds being distributed toward entitlement programs like Medicaid.

Specifically, Medicaid applicants who transfer assets five years prior to applying for Medicaid benefits are subject to a transfer penalty that renders them temporarily ineligible to receive benefits. This transfer penalty is calculated by dividing the amount the individual transferred by the average monthly out-of-pocket cost of nursing home care in the person’s state.

Medicaid’s definition of prohibited transfers is quite broad and includes outright gifts, such as signing over your home to your adult child (with certain exceptions) or giving away certain sums of money. Before the Deficit Reduction Act of 2005, the look-back period was just three years.

The Importance of Medicaid & Estate Planning

If you are like many seniors, you rely on Medicare for your health insurance coverage. Because Medicare only pays for up to 100 days of skilled nursing care, including nursing home care, Medicare recipients must pay out-of-pocket for their care unless they have a supplemental health insurance plan or they qualify for Medicaid assistance.

According to a report by U.S. News, the average yearly cost for nursing home care in the United States in 2013 was $81,000. With the cost of skilled nursing care climbing ever upward, a nursing home would quickly deplete most individual’s assets within a few short years, leaving nothing behind for his or her loved ones.

To qualify for Medicaid in Missouri in 2014, an individual can’t make more than $1,241 per month, with an asset limit of $1,000. Any resources above this limit disqualify an individual from receiving Medicare benefits.

Fortunately, it is possible to plan for Medicaid. With enough advanced estate planning, you can create an estate plan that maximizes your ability to preserve your assets for your spouse and other loved ones while still qualifying for Medicaid. It is absolutely critical, however, to plan far enough in advance to avoid the Five-Year Look-Back Rule.

Springfield, Missouri Estate Planning Attorneys

Contact the estate planning attorneys at the Law Office of Randy L. Smith, LLC today at (417) 841-2775 to schedule an estate plan review and consultation.

This website has been prepared by The Law Office of Randy L. Smith, LLC for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.