Two previous posts covered the Medicaid Five-Year Look-Back Period as a high-level description and with the details everyone needs to know. This post covers some of the options that may provide an alternative.
While most transfers are penalized with a period of Medicaid ineligibility of up to five years, certain transfers are exempt from this penalty. Even after entering a nursing home, you may transfer any asset to the following individuals without having to wait out a period of Medicaid ineligibility:
- Your spouse. This may not help you become eligible since the same limit on both spouse’s assets will apply.
- Your child who is blind or permanently disabled.
- Into trust for the sole benefit of anyone under age 65 and permanently disabled.
In addition, you may transfer your home to the following individuals, as well as to those listed above:
- Your child who is under age 21.
- Your child who has lived in your home for at least two years prior to your moving to a nursing home and who provided you with care that allowed you to stay at home during that time.
- A sibling who already has an equity interest in the house and who lived there for at least a year before you moved to a nursing home.
Under the Deficit Reduction Act of 2005 (DRA), the penalty period will not begin until (1) the transferor has moved to a nursing home, (2) he has spent down to the asset limit for Medicaid eligibility, (3) has applied for Medicaid coverage, and (4) has been approved for coverage, except for the transfer.
LONG-TERM CARE INSURANCE
One strategy that is often used in Medicaid planning is to purchase long-term care insurance to cover long-term care expenses for at least the duration of the look-back period. With insurance benefits paying for at least part of the cost of care, someone may be able to postpone the date of Medicaid application beyond the look-back period and not trigger a penalty period.
In many estates the house is the biggest asset. If the owner wants to stay in his home, he can put it into an irrevocable trust. By putting the house in such a trust, he can shelter the home as an asset from Medicaid five years from now. Whatever the house’s value, it will pass to his children or grandchildren at his death without going through time-consuming and expensive probate (or, in some cases, estate taxes). If he decides to set up such a trust, he should be very clear about the legal implications should he ever have a change of mind.
The Irrevocable Trust starts the clock ticking for the Medicaid spend down. The date of the Trust is used when the auditors can ask where did the money go for the last 60 months previous to filing application for Medicaid.
The following video provides a short explanation of the difference between Irrevocable and Revocable Trusts.