For seniors and their loved ones, few challenges are as intimidating as transitioning to long-term care. The financial considerations alone can be completely demoralizing nearly any family. Thankfully, there are programs and options for those who might need assistance handling the considerable costs involved in this process.

 

One of the best examples of this is what’s known as Medicaid Long Term Care. A branch of the Medicaid program dedicated to elderly individuals with increased support needs, it offers assistance with the relevant expenses, allowing beneficiaries to seek care when otherwise it might be financially unfeasible. 

 

As a Medicaid program, it’s subject to many of the same restrictions and requirements as other forms of aid, including means testing and income limits. What makes Long Term Care stand apart is the “Look Back” period—and your ability to qualify for assistance may depend heavily on how well you understand and account for it. 

 

What Is the Medicaid Look-Back Period?

 

Most Medicaid programs have qualification criteria tied to the applicant’s income, available assets, and financial needs. However, in the case of younger families, working-age individuals, and households with small children, there’s a lower likelihood that the applicants will have an abundance of assets prior to submitting an application.

 

Due to the significant costs involved with long term care, and the possibility of applicants having accumulated assets over the years (e.g. paying off the mortgage on their home, building a retirement portfolio, etc.), the Look-Back Period accounts for that in ways that other forms of Medicaid don’t.

 

Here’s how it works. Medicaid reviews the financial records of the applicant leading up to the submission of an application, usually covering a period of five years. During this period, any asset of significant value is weighed as part of the review, even if that asset was sold, donated, or gifted. This can lead to delays in qualification, and thus a delay in access to Medicaid benefits.

 

In theory, if you, say, own more than one real estate property, or a rare coin collection, it’s expected that you’ll sell off those assets to help pay for long-term care expenses if needed. 

The Look-Back Period policy, then, is intended to prevent applicants from unduly meeting asset limits by giving them away or selling them at a loss, and thereby reducing your total resources.

 

How the Look-Back Period Affects Eligibility

 

Once you’ve submitted a Medicaid application, the agency reviews your asset transfers throughout the Look-Back Period, including those made by the applicant and their spouse (if applicable). Anything transferred before the Look-Back Period will not be considered, but all major assets shuffled around during that period have to be accounted for. 

 

If you’ve held on to an asset, or sold it at around fair market value, you’re in the clear, and just have to reckon with the resource limits as normal. Instead, if you’ve given something away, or sold it on the cheap, you’re likely in violation of the Look-Back Period.

 

You’ll be given an opportunity to try to reclaim the asset, or otherwise collect on the sale to balance out the violating transaction. If that can’t be done, however, the missing value of the asset is then assessed, and applied to your eligibility as a Penalty Period. This doesn’t entirely  disqualify you, but does effectively postpone your eligibility. More on that below

 

What Counts as a Transfer or Gift?

 

Broadly speaking, any time you shift ownership of an asset from yourself to someone else at no—or comparatively little—cost, it counts as a violation.

 

Some explicit examples include:

 

  • Gifting hard assets (vehicles, homes, valuable items) to friends or family.
  • Donating hard assets to charities, organizations, or other recipients.
  • Donating money to non-profits, such as making tithing donations to your local church.
  • Selling valuable assets at well below fair market value; pawning off rare collectibles at a garage sale, etc.


There are also a number of cases that are gray areas, where circumstance comes into play, or where you may be violating requirements by accident:

 

  • Transferring assets to a non-applicant spouse can be an exception, but it can also be a violation. The usual determining factor is total value, as there is a limit to how much can be transferred to the spouse before it counts as a violation. 
  • Paying a family member to provide care can be a valid loophole, unless you’ve done so without the necessary caregiver agreements in place.
  • Gifting or transferring assets to children, posterity, or other family is usually a violation, but exceptions are made in a few cases—such as when transferring an asset to an applicant’s child that has a disability, or transferring a home to a child or sibling that has been sharing the residence and caring for the applicant.
  • Failing to keep adequate records can lead to the same outcome as giving an asset away; if you can’t prove it was properly sold, it won’t be counted as having been.
  • Though the IRS allows for a certain amount of asset value to be gifted before it adds to your tax liability, this is separate from the Look-Back Period, and you’ll still be expected to account for it to Medicaid.

 

Finally, even after you’ve cleared the review of your Look-Back Period, you can still be found in violation if you become the recipient of a significant asset after applying, and then fail to account for it or transfer it properly. 

 

Penalties for Violating Look-Back Rules


When you’ve been found in violation of Look-Back rules, you’ll face a delay in eligibility, known as a Penalty Period. 

 

Similar to how a severance or cashed out vacation time might delay unemployment benefits from a given state, the asset value is compared against the monthly cost of long-term care, and divided into as many months as it would take to equate the value. 

 

Example: if you gave away a car worth $10,000 to a grandkid, and are looking at care expenses of about $2,000 a month, that means you’re likely to receive a penalty that will delay eligibility for five months. Once that penalty period ends, you can continue the application process and receive benefits as normal. 

 

Legal Strategies to Protect Assets Before Applying

 

First and foremost, perhaps the best piece of advice we can offer is to consult with an elder law attorney (that’s an attorney that specializes in elder law, not necessarily an attorney that’s reached retirement age). 

 

While not every situation needs or can afford the full involvement of an attorney, consulting with one is often a good idea, even on a one-time basis. Local attorneys will be more familiar with details and specifics relevant to where you live, and any attorney with this focus will know far more than we do. Alternatively, you can also work with a Medicaid Planner.

 

Beyond speaking to an attorney, there are a few other things you can do on your own, either to be proactive, or if you intend to skip speaking with a lawyer:

 

  • Don’t procrastinate—there are very few exceptions to the 60 month/5 year Look-Back period. If you know long-term care is probably in the cards far enough in advance, you can work toward medicaid eligibility before it even begins. Even if that’s not an option, you lose nothing by starting as early as possible, while waiting carries a lot of possible downsides.
  • Keep a look out for other support options—while Medicaid is far-and-away the most widely relied upon form of long-term care financial assistance, it’s not the only option. Long-term care insurance can serve as something of a variation on “retirement planning,” and there are other assistance programs that focus on more narrow demographics (location, group affiliation, condition-specific organizations, etc.).
  • Keep a detailed record—many people run afoul of Look-Back violations by accident, either by doing something they thought was permissible, or by failing to track asset transfers and disposals. You may still have to reckon with violations, but with a record, you can avoid some, and at least speed the process up for others.
  • Remember that Medicaid and Medicare are different—they have different qualification criteria, different coverage details, and critically, Medicare does not have a Look-Back period (for anything). And you can absolutely be the recipient for both simultaneously. 
  • Use valid methods for spending down assets—again, details will vary, and it gets pretty complicated, but you can usually spend money on certain things without incurring a violations, such as certain forms of funeral planning, life care agreements, Medicaid exempt annuities, paying down/paying off debt, or even paying for home modifications.

 

Lastly, it’s worth noting that, in some cases, you can file for a financial hardship exception to waive the penalties, but cases where these are deemed valid are uncommon.

 

Common Myths and Mistakes to Avoid

 

  • There is no Look-Back Period for Medicare, or for Medicaid programs that aren’t related to long-term care, for that matter. This is the only situation where these issues are relevant. 
  • The IRS Estate and Gift Tax Exemption does not apply to the Look-Back Period; even if you’re in the clear on your tax filing, you’ll likely still be in violation of Look-Back rules.
  • Document everything, and use official agreements wherever possible. Anything from failing to hang on to receipts to paying a family member for care under the table can come back to bite you later.
  • Asset/resource limits, maximum figures for allowable asset transfers, and even the Look-Back Period in a few cases, all vary by location. So do your research, or talk to a professional.
  • Violations do not disqualify you. They simply postpone your eligibility to receive benefits. It’s not ideal, but even if you find yourself saddled with a lengthy Penalty Period, you can still qualify for benefits once it’s over.

Anything prior to the Look-Back Period in the location where you’re applying for benefits won’t be considered. However, any assets you receive moving forward that aren’t dealt with properly will impact your eligibility.

 

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