Medicaid is intended to give long-term medical care to people who need it. Unlike Medicare, Medicaid is a means-based program, which means a person may only be eligible if they have few assets. The program begins where a person's funds and other assets end. You're expected to pay for your own long-term care on your own until you can no longer pay, and then Medicaid takes over.
When you consider the possibility of expensive long-term care, you may be concerned about losing your house or other assets in the course of applying. Transferring assets to your spouse, children, or various types of trusts may be ways to protect your assets, however, Medicaid has something called a “look-back period” that you need to know about before you transfer anything.
Five Year Look-Back
If you begin transferring assets right before you apply for Medicaid, you will be subject to a five-year review of all your assets. Countable assets transferred within five years of your application date will be subject to penalty periods, while those transferred prior to the five-year period will not.
Asset transfers made by your spouse can also result in a five-year Medicaid penalty period. Medicaid sees these as assets that could have been used to help cover your long-term care costs if they were not transferred or gifted by your spouse.
Your House and Medicaid
There are special rules regarding your house during the five-year period. Medicaid will not require your home to be sold for your care if it is:
- Occupied by you and/or your spouse
- Does not exceed a certain value, which can vary depending on your state
- Owned by you and/or your spouse's
You should be aware, however, that you can't gift your house outright without a penalty, except under certain conditions. For example, you can transfer your home without penalty to:
- Your spouse
- Your child who is under 21, blind, or permanently and totally disabled
- A son or daughter other than previously described, who has lived in the home for the previous two years and provided you with care that allowed you to stay in your home when you would not have otherwise been able to stay in your own home
- Your sibling who has an equity interest in the home and lives in the home at least one year before you are institutionalized
In some cases, Medicaid may put a lien on the home to recover the cost of your long-term care after your death.
What This May Mean for You
If you transfer assets during the five-year lookback period, you will be ruled ineligible for Medicaid for a period of time since the assets could have been used to pay for your care. While there are exceptions like the ones listed above, “spending down assets” must be done carefully to avoid triggering a penalty or other ineligibility. An attorney who handles Medicaid planning can help you avoid potential pitfalls during your application and planning process. It should be noted that, although Medicaid penalty periods can be assessed when transferring assets within the five-year lookback period, that does not necessarily mean that transferring assets that result in a penalty period should be avoided in all situations.
Experienced elder law attorneys will often time intentionally make transfers that result in a penalty period. This is often done when a family is facing immediate long term care needs. By carefully designing a plan and strategically transferring assets, knowing that it will cause a penalty period, elder law attorneys are often able to use the penalty period, along with the asset transfer and an income stream, in order to preserve assets that would have otherwise needed to be spent on long term care expenses. This planning becomes more complex and should be coordinated by an experienced elder law attorney, but when done properly, intentionally incurring a penalty period can sometimes save families tens or even hundreds of thousands of dollars in long term care expenses.
Prepare for Medicaid with an Attorney
The earlier you can get your affairs in order, the smoother your transition will be. For all questions regarding elder law and Medicaid planning, speak with a reputable attorney with Heritage Law Office of Wisconsin. We are dedicated to providing you with the knowledge to properly handle elder laws and prepare for long-term care. Contact our office at (414) 253-8500 for a free case evaluation today!