Very few people have the assets to pay out-of-pocket for an extended stay in a nursing home or other long-term care facility, and most people also lack long-term care insurance that would cover those costs. As a result, if you ever need to stay in a nursing home, there's a good chance that at some point, you will qualify for Medicaid to pay for the cost of your nursing home care.
Of course, Medicaid is only available to those who have a limited amount of assets. You may reach this point after “spending down” your own assets to pay for care. If you're like most people, you hate the idea of your life's savings being consumed in this way, rather than going to provide for your family, other loved ones, or to charities you support.
The temptation exists to transfer assets to loved ones either before or after entering a nursing home so that you'll qualify for Medicaid sooner as well as preserve your assets. Unfortunately, the government disagrees; hence, the creation of something commonly referred to as the Medicaid “look-back” period.
The “look-back” period refers to a span of time during which, if you made certain financial transactions or transfers, you must disclose those when applying for Medicaid. Medicaid, though a federal program, is administered by the states. So your state Medicaid agency will evaluate the transactions to see if any of the transfers you made were for less than fair market value (FMV). An example would be selling your well-maintained vacation cottage to your adult child for a dollar.
So how long is the look-back period? Prior to the enactment of the federal Debt Reduction Act (DRA), state Medicaid officials reviewed only transfers made within the 36 months immediately preceding a Medicaid application, or 60 months in the case of certain transfers involving trusts. Michigan adopted the DRA in 2007, making the look-back period for all transfers 60 months.
If you sold your vacation home to your child for a dollar on December 31, 2008, and applied for Medicaid on January 1, 2014, you're in the clear. If you applied for Medicaid on December 30, 2013, the transfer of your cottage would come under scrutiny.
There are some transfers of assets that will not negatively affect the transferor's eligibility for Medicaid. These include certain transfers to a spouse or to a blind or disabled child, among others.
As you can imagine, the government does not take kindly to individuals trying to make an end run around requirements to qualify for government benefits. It's one thing to prohibit transfers for less than fair market value for people applying for Medicaid; it's another to enforce the prohibition.
The way the government does this is to delay eligibility for Medicaid for a period of time that depends on the amount of assets transferred during the look-back period. This amount is divided by the amount that Medicaid has deemed to be the average monthly private pay cost of a nursing home in your state. The number that calculation yields is the number of months your Medicaid eligibility is delayed.
Let's say that vacation cottage you transferred away for a dollar was worth $160,000, and that the average monthly cost of nursing home state is $8000. You would divide $160,000 by $8000 and get twenty—that would be the number of months you'd be ineligible for Medicaid due to the transfer. What's more, that period of ineligibility does not begin to run until you have moved to a nursing home, spent your assets down to the limit for Medicaid eligibility, applied for Medicaid, and been approved save for the asset transfer. In other words, your period of ineligibility for Medicaid doesn't begin to run until you actually need Medicaid coverage.
Furthermore, a majority of states have so-called “filial responsibility laws” which impose a duty of support on adult children for their impoverished parents. While Michigan does not have such a law (and most states that do have them rarely enforce them), adult children who sign as guarantors for their parents' nursing homes or assisted living facilities may be sued for the cost of that care. That's something for both aging parents and their adult children to be mindful of.
There are methods by which you can transfer your assets in order to protect them, even during the five year look back period, but this must be done with caution and with the assistance of an experienced elder law attorney.
Learn more about Medicaid planning for seniors so that you can protect your own assets and those of your loved ones: