The more I read the more confused I get. Can someone explain how the 5-year "look back" period for Medicaid is related to the gift tax limits?

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I am an attorney with 25 years' experience doing Medicaid planning. My book "How to Protect Your Family's Assets from Devastating Nursing Home Costs: Medicaid Secrets" is devoted to answering this question and also how to plan to minimize or eliminate asset spend downs! That being said, let me clear up a few items discussed above:

1. $13,000 gift exemption: This figure relates solely to a Federal GIFT TAX exemption and has no relation to Medicaid rules. Anyone concerned with Medicaid coverage will never make anywhere near the $5,120,000 of lifetime gifts permitted before a federal gift tax is due! Thus, for all practical purposes, the $13,000 limit can be ignored for anyone worried about Medicaid.

2. 5-Year Lookback: As stated by others above, when a person makes a gift of virtually any amount within the 5-year period preceding the date that person applies for Medicaid, those gifts are added together and will result in a disqualification period. The length of the disqualification (or "penalty") period depends on the total amount of the gifts made within the 5-year period and also the penalty divisor of the state where they are applying for Medicaid. For example, in a state where the penalty divisor is $5,000, if the total gifts made within the lookback period equal $50,000, then the penalty will be 10 months.

So the bottom line is that there is NO minimum amount a parent can gift their children to avoid the 5-year lookback period. But once 5 years has passed following a particular gift, that gift will no longer count when the person who made the gift applies for Medicaid.

I hope that helps!
Helpful Answer (10)

I'm not sure what exactly you are referring to with regards to a 13k gift. My limited knowledge of the 5-year look back is related to assets that have been transferred into someone else's name or a Trust as well as assets that have been given away to another individual within the 5-years prior to the date of applying for Medicaid. Under some, but not all circumstances, assets (money included) that has been transferred and/or given away outside of the 5-year period are not subject to scrutiny as part of the Medicaid qualification process but those assets that have been transferred and/or given awaying inside of the 5-year period are subject to scruntiny and are usually included in determining the candidate's total assets. My specific experience: When getting my grandfather qualified, because my grandmother was alive, their home was by default not considered in the equation (aside from the deed had to be transferred out of my grandfather's name an solely into my grandmother's) but there was still an asset amount maximum that was set and there was a level of "spend down" that had to be done in order for him to qualify. After my grandfather passed away, their Attorney advised that we move everything into a Trust so that nothing would be in my grandmother's name (she was diagnosed with Alzheimer's) and that after at least 5 years, if she needed to qualify for Medicaid, her home and other assets would not be a factor in her qualification. Unfortunately, within a max of 2 year, my grandmother had to be placed in a nursing home and when Medicaid did their 5 year look back, they saw that she owned a home and other assets; the fact that these had all since been moved into a Trust was completely irrelevant in their eyes. So that leaves us having to get all of those assets sold in order for her to qualify for Medicaid. On top of all that, the Medicaid folks have told us that we must transfer everything out of the Trust and back into my grandmother's name (yes, the attorney has to do all of the paperwork to undo what he just did a few years ago) and my grandmother's home has been on the market for several months now. Medicaid has proof of the home being for sale so at this point we are hoping for "conditional" qualification at least.

I'm not sure if the 13k gift you mention has to do with monies that the person who is applying for Medicaid gave to someone or received. Either way, I would think that if either occurred within 5 years of applying for Medicaid then it may be considered an asset and potentially subject to spend-down or even a penalty (I don't know much about penalties, but our case worker has mentioned it in passing on many occasions). The rules vary from state to state, my experience is based on New Jersey. If you don't feel comfortable discussing with a Medicaid case-worker, definitely try to talk to an attorney that is well versed in elder care and/or estate planning.

Sorry to be long-winded. Hope this helps.
Helpful Answer (34)

I am confused about how much money a parent can "gift" her children - she is already in assisted living (private pay), no living spouse, no way of predicting how long she will be in assisted living other than deducting $5500 per month from her assets to come up with the month and year she will be "booted out". If I am understanding this correctly the parent is no longer allowed to "gift" anything to her children as soon as any health issue presents itself...due to the Medicaid watchdogs??? Would that be a correct assessment of the rules of the road?
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Can anyone tell me what an elder law attorney is going to cost "my mother"...from personal experience.
Helpful Answer (24)

Ohio - I am in the process "spending down" to get my Dad qualified for Medicaid. My mom is still alive and my dad has been admitted for long term care into a NH and they have very little money. There are a number of calculations based on average life expectancies that determine how much the "community spouse" can keep. Once that number is determined, you have to spend down to it. That included cashing in life insurance policies, (although they get to keep at least one with a value no more than $1500), and any stocks or investments. The 5-year look back is for the governmnet to see if you were trying to hide money. So if you think an elder is going to need nursing home care with 5 years (but who really knows that!), don't give away large sums of money to relatives. That would make you Medicaid ineligible for a period of time. They call it a penalty. At that time, all nursing home costs would be private pay until you are eligible again. There are different rules in differetn states and if a community spouse is still alive, like they can't take your home or car. So we are prepaying both their funeral expenses (allowed), buying Mom some new clothes and shoes (allowed) and new hearing aids. As long as the items you buy are for the direct benefit on the institutional spouse or the community spouse and you can prove the purchase, you can spend it. But you can't buy at $3,000 watch! Any transaction over $1,000 will be looked at.
Hope this helps!

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Wow, lots of good information here. SelfishSiblings, do you know if they are forced to cash in an annuity, even if it was purchased more than 5 years ago or less than 5 years ago? Do you know how we can get a list of what is "allowable"?
Helpful Answer (13)

Ohio, NH (aka skilled nursing facility/SNF or long term care/LTC) is paid for 3 ways: 1) private pay by either the elder or their family; 2) from LTC insurance; or 3) by qualifying for Medicaid, a needs based entitlement program that is a state and federal partnership (unlike Medicare - which is federal).

Because of this, Medicaid rules are determined by each state & are state specific under a federal "umbrella" of guidelines. So how it runs in GA will be different yet sometime similar than TX program. A lot of what happens, especially after the Medicaid recipient dies, is very much dependent on what the states view is on property rights, estate/death, probate laws, etc. Yep, confusing.

For NH Medicaid eligibility, an individual must show that:
1) are 65+,
2) medical condition requires that level of nursing care,
Just being old, having dementia, etc. may not be enough.
3) monthly income at or below their states max (about 2K),
This is the “income test”– how much $ do you make. Texas is $2,094.
4) all countable assets are at or below 2K
This is the “asset test” – how much $ do you own.
5) not gifted away anything of value during 5yr look-back period.

If you do, there could be a “transfer penalty” when items are gifted. Penalty different for each state as it’s based on each state’s NH reimbursement rate. For Texas, it is $ 142.92 a day rate.

Max look-back is 5 yrs. Most states require 3 – 6 mo. of financials along with all life funeral, burial & health insurance policies with initial Medicaid application. The NH usually submits the application with whatever documents you give them along with their request for payment from the state. The state can require more financials if something pique’s interest or something is unclear.

INCOME: This is their SS monthly check and any retirement or other $ paid to them on a regular basis. The max is basically 2K, & each state has it's own specific amount. If there is a community spouse, the income allowed is different.
If it is that every month they are over the states income limit BUT not enough to pay in full for the NH and qualifies for NH in every other way, then they can see an elder care attorney to do a "Miller Trust" or a "Qualified Income Trust". Say mom gets 1K from SS & 1,500K from retirement every mo. Income = $2,500. Basically is $ 500 over ceiling for monthly income. No matter what is always is $500 over. So this excess $ 500 is what funds the trust and therefore mom’s income is now 2K and within the states income ceiling. The beneficiary of the trust is state's Medicaid program and upon death reverts to the state. Miller really has to be done by an attorney who does elder law as it needs to be flexible/adaptable and meet the criteria of each state's law on probate (death laws) & Medicaid rules.

ASSETS: All assets are counted, unless the assets fall within the short list of "noncountable" assets. The noncountable's are:
- personal possessions,
- a vehicle (some states have a limit on the value)
- their principal residence, provided it is in the same state in which the individual is applying for coverage & the house may be kept with no equity limit if "community spouse" lives there; otherwise the equity limit is 500K (750K in some states)
- prepaid funeral (irrevocable, NCV, usually 10K max)
- small amount of term life insurance (usually $1,500 & NCV)
All other assets (savings, stocks, cash value insurance policies, rental property) are counted.Must “spend down” to get to their states max (+/- 2K) to qualify.

The financials are what most folks focus on. But remember that they also need to medically qualify for skilled care for Medicaid.

Most NH admissions come from a hospital discharge. If an individual covered by MediCARE is discharge from a hospital to a nursing home for continued care (rehabilitation) after an inpatient stay of at least 3 days, Medicare will cover 100% of the first 20 days and MAY pay up to 100 days, subject to a co-payment by the patient of $141.50 per day for days 21 to 100 (for 2011). Medicare does not pay for the many months/years that some people reside in a NH for long-term custodial care. In general, Medicare is limited to short-term acute care. But this MediCARE paid time in NH is when you need to get the documents together to apply for MedicAID if you need to go that route. Good Luck & keep a sense of humor.
Helpful Answer (9)

See an Elder Law Attorney asap. They have the correct answers that apply to your situation and YOUR STATE of Residence. Otherwise, it is conjecture.
Helpful Answer (8)

We paid $200 for our consultation. If the 'do' anything for your, it will be much more but could ultimately save you more.
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Swimmer2 - my experience with dealing with transfer penalty is that it depends on
if the intent was done for Medicaid avoidance combined with when it was done. In general the state sends out the transfer penalty letter that assumes the transfer was done with intent and you have to prove otherwise. Then you kinda have to factor in your state's management of the Medicaid program AND the specific nursing home AND how proactive the family member who is the financial point person for the elder is AND the amount & type of transfer penalty AND most importantly if you have an attorney. If you get a penalty letter, the first thing is to file an appeal which basically gives you an additional 90 days (I'd defientely get an attorney in this 90 day period). The appeal has to be faxed (with a transmission report so you can show you did it) or sent return registered mail so again you can show you did this).If your parent is in the NH "Medicaid pending", the NH has to keep them during this appeal period. But the NH can ask that someone within the family sign off to be financially responsible for the elder - often that form was already done in the plies of paperwork in the initial admission. So if Sissy signed mom in and signed her name to all, then Sissy is financially responsible for the NH debt. The NH can and will send someone a bill and the family need to figure out how to pay for it either by doing a guarantee against the elder's assets or their own assets. So if Sissy signed them in, that means Sissy will likely get the bill for private pay amount for the elder's NH stay.

Now if Sissy signed all forms as "Jane Smith Jones as DPOA for Mary Smith" then she is not responsible. This is imho a very important item to do on all paperwork and in the rush and stress of getting them into the NH is overlooked.

For tangible property - like a home or a car - the state will easily found out if ownership is changed or transferred and the amount paid or gifted.
Tangible property value is usually done by each county or parish assessor and then dovetailed into the state's database so that info is just keystrokes away.

At my mom's first NH, there was a lady whose son transferred her home into his name after she was in & on Medicaid, imho done deliberately to avoid the state from taking it after she died. Also imho he is a total jackass. House definitely under 100K in value, maybe 50K. The lady was in the NH for several months before the transfer was found out. She was across the hall from my mom. State sent NH and family a letter regarding a transfer penalty was in effect. Son did the whole not gonna pay nonsense for like 4 months and what happened is that the lady was made an ward of the state and shipped out to a NH in another county that was desperate to fill their beds,as she was a ward of the state the family wasn't told; the son was billed probably 60K by the NH to forever be on his credit history and a claim was probably placed on the property by the state. This is an awful situation. So if he ever wants to do anything with the house later on, that claim has to be released in order to get a clean title. Not even to start to talk about what the little lady probably went through. What is so loco about what he did was that if he had just left the house alone and left it in her name and he just paid whatever minimum on it - like taxes - then when she died the state probably would not even have done a MERP (estate recovery) claim on it because the value of the house is too low to be worth going after it in probate and the time and costs involved in all that. So he would have gotten the house in the end in the probate hearing and the state would have paid for his mom's NH stay 100%.
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