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If within the next 5 years he needs to use Medicaid, can the adult children reimburse the proceeds acquired from the house, or does he have to keep the funds for 5 years?

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Cabridie, let your Dad know how much it could cost him if he were to go into Independent Living, Assisted Living, Assisted Living/Memory Care, or into long-term-care [nursing home]. Cost per month could be $5k to $15k. Yes, per month !!

I know I was like a deer in headlight when I first learned the cost of each. Thank goodness my parents saved for a "rainy day" as at one time it was pouring out there with my Mom in long-term-care, and with Dad having caregivers around the clock at home, it was costing my parents $34,000 per month for their care. YIKES !!

Eventually my Dad sold the house after Mom passed [he was hoping she would come home, but that wasn't in the cards for her] and used the equity for his care. Whatever was left over was given however his Will was written. I know I was always worried about Dad running out of money and needing to apply for Medicaid. Since I was POA I kept 3-ring binders on all of Dad's bills and a copy of the checks from his account, just in case he needed Medicaid.

Now if your Dad sells his house now, where will be live? Will he downsize into something easier to manage? I know my Dad couldn't wait to move from his house being in his 90's as maintaining the house was too much for him. He was happy as a clam living in Independent Living, said he felt like a King there :)
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He can give it to his children. Their best bet is then to bank it and not touch it for five years, unless they're already so rich that if he needs care before the five-year period is up they will be able to fund it for him.

If he keeps the money he will need to work his way through it before he can apply for Medicaid, though.

Are you confident that your father has all the information he needs to come to a practical decision about this? If he's expecting to sell the house and realise a substantial sum of money, perhaps it would be best to get a reputable financial adviser to have a look at his plans overall.
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If you want to take a chance that he can outlast the five year look-back period, then he needs to gift the proceeds now. They can't "force" the recipients to give back the money, but if Dad needs Medicaid before the five years are up, then he will not be eligible for a period of time equal to the total amount of the gift divided by the average cost of nursing home care for your state. Each state has a different amount. So, if Dad gifts $100,000 and the average cost of NH care in his state is $5,000 a month, then he will not be able to have Medicaid pay for anything for twenty months.

The five year period is not pro-rated. So, if Dad needs Medicaid, and 58 of the 60 months have passed, the penalty is the same as if one month has passed.
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“Does he have to keep the funds for 5 years?”

No, he has to keep the funds until he dies unless he uses it for his own care before then.
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You are not understanding the five year look back period, and there has been discussions about increasing the five years to seven. If the gift were made today, and dad needed nursing home in four years and 364 days he would be penalized for the gifts in an amount equal to those gifts where his care would have to be paid out of someone's pocket until the entire gift amount is spent for his care. Then he could reapply for Medicaid.
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As I understand it, that would be considered a gift when applying for Medicaid and would result in not qualifying for x days. During that penalty period the three of you could private pay for his care until he is eligible for Medicaid.

How is your dad's health now?
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That money needs to be used for his care when he needs it - not gifted to his children.
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I would not trust anyone to have funds that were gifted five years ago. He could have a massive stroke or heart attack tomorrow and NEED nursing home care. Then what?
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