Some families make large gifts to family members — to enable a child to purchase a house, for example, or to assist a grandchild by paying college expenses. Others make the conscious choice to make a large gift of assets to their children to ensure that those funds will stand in the place of an inheritance should the parents ever require long term care in a nursing home. Without such large gift, those funds might otherwise be depleted by high nursing home costs.
Considering Future Medicaid Eligibility
When making such gifts, seniors must pay close attention to the affect such gifts would have on their ability to obtain government benefits to pay for future nursing home care. As long as sufficient time passes from the time of the gift and an application for Medicaid benefits, those assets will be protected and the gift-giver’s children will not be required to pay back the gift to cover the gift-giver’s care costs.
Under the current law, the gift giver must wait five years (or three years for certain gifts made in the past) before seeking Medicaid benefits in order to shelter those funds. If the gift giver applies for Medicaid too soon, however, then that person may end up becoming ineligible for Medicaid benefits for a very long time. How long depends on the amount of the prior gift, when it was made, and in what state the gift giver is seeking to obtain Medicaid.
The key to the problem is how the “lookback period” is determined. The lookback period is the period of time for which disclosure of asset transfers must be made when applying for Medicaid. When one submits a Medicaid application, the applicant must disclose gifts that were made in the preceding three to five years (depending on when one files the application), such period of time being the lookback period. As long as the gift of assets occurred before the beginning of such period, i.e. more than three years ago for a Medicaid application filed in January, 2008, then such gift, no matter how large, need not be disclosed.
If, however, the applicant miscalculates the lookback period and submits a Medicaid application too soon, that is, less than three years following the gift for a Medicaid application filed in January, 2008, then such gift must be disclosed. In Maryland, there will be a period of Medicaid ineligibility equal to one month for each $4,300 given away.
The following example illustrates the point.
Suppose a parent gave $300,000 to her adult children in March, 2005, intending to shelter those assets. If that parent needed long term nursing home care beginning in November, 2007, the family would be wise to pay privately until such time that the gift need not be disclosed under the applicable lookback period.
If the family waits until April, 2008, to apply for Medicaid to pay the nursing home costs, that is, more than 36 months following the $300,000 gift, then such gift need not be disclosed and no period of ineligibility will result.
If, however, the family applies for Medicaid in January, 2008, then such gift must be disclosed. The consequence of doing so in Maryland is that the State will impose a 70 month period of Medicaid ineligibility beginning in March, 2005, and ending December, 2010, 2 years and 8 months longer than if the family had waited until April, 2008, to apply for Medicaid. In Maryland, that period of ineligibility is calculated by dividing $300,000 by $4,300.
While one might think that the solution to the problem is to withdraw the January, 2008, Medicaid application, and refile it in April, choosing to use April’s three year lookback period instead, such is not the case. Once the Medicaid application is filed in January, the applicant locks in the earlier lookback period, making disclosure of the $300,000 transfer mandatory for all future Medicaid applications.
New Medicaid Rules Complicate the Matter
Also, if the parent had used a revocable trust or some other type of trust as part of her estate plan, or the Medicaid application is made in future years, then the applicable lookback period may be longer than 3 years. Moreover, for gifts made after January, 2006, the Medicaid ineligibility period may begin to run, not when the gift is made, but rather, at the time the parent is out of money and ready to apply for Medicaid.
Hence, it is important when doing long term care gift planning that you accurately calculate the Medicaid lookback period. Then, you must refrain from applying for Medicaid benefits too early lest you lock yourself out of Medicaid eligibility altogether.
The Gatesman law office assists families in wending their way through the minefield of the Medicaid ineligibility rules to enable them to shelter assets to pass on to future generations.