Page Reviewed / Updated - June 2019
For an elderly person to be eligible for nursing home care, assisted living, adult foster care, or in-home care from Medicaid, they must have limited income and assets. To prevent candidates from simply giving away their money or resources to qualify for Medicaid, the federal government implemented the “look-back period”. This is a set period of time prior to the individual’s application during which the Medicaid administering agency reviews all the financial transactions that the senior has made. If a transaction is found in violation of the look back period’s rules, the applicant will be assessed a penalty. Penalties come in the form of a period of time that the applicant is made ineligible for Medicaid. This means they will not be able to receive care services paid for by Medicaid for a certain number of months, or sometimes, even years.
A Medicaid applicant is penalized if assets (money, homes, cars, artwork, etc.) were gifted, transferred, or sold for less than the fair market value. Even payments to a caregiver can be found in violation of the look-back period if done informally, meaning no written agreement has been made. Please note, asset transfers by the applicant’s spouse can also affect the applicant and can result in a Medicaid penalty period for the applicant. The reason for this penalty period is that these assets could have been used to help cover the cost of long-term care, had they not been gifted or transferred.
In 49 of the 50 states, the length of the look back period is 5 years (60 months). As of 2019, the one exception to this rule is California, which has a 2.5 year (30 month) look back period. The look back period begins the date that one applies for Medicaid. For instance, if an elderly individual completes an application for Medicaid on July 15, 2018, the look back period begins on that date and goes back 5 years to July 15, 2013 (or in California, back to Jan. 15, 2015)
The penalty for violating the Medicaid look-back is a period of time that one is made ineligible for Medicaid. This period of ineligibility, called the penalty period, is determined based on the dollar amount of transferred assets divided by either the average monthly private patient rate or daily private patient rate of nursing home care in the state in which the elderly individual lives. (This is called the penalty divisor or private pay rate, which increases each year with the increase in the cost of nursing home care). Please note, there is no maximum penalty period.
The state in which you reside has an average monthly cost of $4,000 for nursing home care and you gifted $60,000 during the look-back period. This means you will be ineligible for Medicaid for 15 months. ($60,000 gifted divided by $4,000 average monthly cost = 15 months).
Over the past five years, a grandmother gave her granddaughter $8,000 / year, which equals $40,000 in violation of the 5-year look-back period. The average daily cost for nursing home care in her state is $200. This means the grandmother will be ineligible for Medicaid for 200 days or approximately 6.5 months. ($40,000 gifted divided by $200 average daily cost = 200 days / 6.5 months)
Four years before applying for Medicaid, an elderly woman sells her home to her son for $250,000. During the review, it was discovered that the fair market value of the home at the time of sale was $350,000. She sold the home for $100,000 under its value. The monthly cost of nursing home care in her state is $5,000. Therefore, her penalty period of ineligibility will be 20 months ($100,000 / $5,000 = 20 months).
For a period of 8 years, a great aunt gave her great niece a sum of $7,000 / year, totaling $56,000. Given the look-back period is just 5 years, the great aunt is only in violation of the look-back period for 5 of the 8 years. Therefore, there is a sum of $35,000 that falls within this penalty time frame. The average cost of private pay nursing home care in her state is $7,000 / month. This means the great aunt’s period of Medicaid ineligibility will be for 5 months ($35,000 / $7,000 = 5 months).
The penalty period begins on the date that one becomes eligible for Medicaid, not the date that the transfer or gift resulting in penalization was made. For example, if you transferred your home to your child on August, 5th, 2019, but didn’t become eligible for Medicaid until March 16th, 2018, your period of ineligibility will begin on March, 16th, 2018.
Fortunately, there are multiple exceptions to the rules and exemptions made for families in difficult situations. Under these exceptions, applicants are permitted to transfer assets to certain parties during the look-back period without incurring a penalty. Less fortunately, these options are often confusing and difficult to implement without the expertise of a Medicaid planning professional.
An applicant is permitted to transfer up to $126,420 (in 2019) to their spouse, given their spouse is not also applying for long-term care Medicaid and will continue to live independently in the community. Phrased differently, a non-applicant spouse is permitted to retain up to $126,420 of the couple’s assets. This is referred to as the Community Spouse Resource Allowance (CSRA). The dollar amount changes on an annual basis, and there is some variance to this exception dependent on one’s state of residence. However, in reality, an applicant spouse can transfer unlimited assets to their non-applicant spouse without violating the look back period. This is because, for Medicaid eligibility purposes, all assets of a married couple are considered jointly owned. (Learn more here.) However, a non-applicant spouse is not able to keep more than the allotted CSRA.
Each state is either a 50% state or a 100% state, meaning the non-applicant spouse (called the community spouse, the healthy spouse, or the well spouse) is permitted to retain up to either 50% or 100% of the couple’s assets, up to the allowable $126,420. The remaining assets must be “spent down” until the individual in need of long-term care meets the asset limit for Medicaid qualification. This can be done by paying off debt, making home modifications, or contributing towards the cost of long term care. To clarify, view the table below.
|2019 Medicaid Community Spouse Resource Allowance|
|Couples’ Combined Assets||$50,000||$100,000||$150,000||$250,000||$500,000|
|Amount the “Community Spouse” keeps in a 50% State||$25,000||$50,000||$75,000||$125,000||$126,420|
|Amount the “Community Spouse” keeps in a 100% State||$50,000||$100,000||$126,420||$126,420||$126,420|
Applicants are permitted to transfer assets or establish trusts for disabled children under the age of 21. This includes children who are legally blind.
A home can be transferred to a sibling should that brother or sister own a portion of the home (have equity in the home) and have resided in the home for at least one year prior to nursing home placement of the person in question.
Adult Children Caregivers
The “Child Caregiver Exemption” is designed for adult children who live with the Medicaid applicants (their parents) for a minimum of two years prior to Medicaid application and serve as their primary caregivers. Under this exemption, the parent can transfer their home to their child without penalty. To learn more about this exemption, click here.
Paying off debts during the Medicaid Look-back Period is also exempt from violation. For instance, paying off one’s mortgage or home equity line of credit is a great way to turn liquid assets into exempt assets.
Since the federal government permits U.S. citizens to gift money (as of 2019, as much as $15,000 / year per recipient) via the estate and gift tax exemption without paying tax on it, one may not realize that Medicaid does not consider the transaction to be exempt from the Medicaid look-back period. Even gifts for special occasions, such as holidays, weddings, and birthdays, may result in penalization by Medicaid. The same holds true for charitable donations. Further complicating matters is the fact that gifting rules change by state.
Lack of Documentation
Even if one sells an asset and receives a value equal to the fair market value, if they are unable to provide documentation of the transaction, they might be found in violation of the look-back period. This is of particular relevance for assets on which the government has a record, such as with boats, motorcycles, or vehicles via registrations.
Many people are the under the mistaken assumption that an irrevocable trust, sometimes referred to as a Medicaid Qualifying Trust, is exempt from the Medicaid look-back period. However, this is not the case. A trust is a legal arrangement where an individual (the grantor) transfers assets, and ownership, to a third party, also called a trustee, who then holds the assets for the named beneficiary. (Assets that can be transferred via trusts include stocks, CDs, annuities, cash, and property.) With an irrevocable trust, the grantor cannot change or revoke the trust as opposed to a revocable trust that can be changed. Irrevocable trusts made during the look-back period are considered gifts, and therefore, are in violation of the look-back period. However, irrevocable trusts made prior to the look-back period are not considered countable assets.
Medicaid is a combined federal and state program and as such, so are the rules governing look-back periods. The penalty divisor amount varies by state. That is to say the dollar amount that Medicaid uses as the average cost of nursing home care varies. Some states use a monthly average penalty divisor, while others use a daily average penalty divisor. Another variation, for example, is in the state of New York. The rules governing the transfer of assets under fair market value do not extend to home care (also referred to as community care), but instead only apply to nursing home care. Some states may also allow for small gift exceptions. For instance, Pennsylvania, allows individuals to give up to $500 total / month without being in violation of the Medicaid look-back Period. Please note, this does not hold true for all states.
It is strongly recommended that one consult with a Medicaid planning professional who understands the nuances between states.
There are many different types of Medicaid programs and the look-back period does not necessarily play a role as an eligibility factor in all of them. However, this page is only concerned with those Medicaid programs that are relevant to the elderly, and the Medicaid Look-back period applies to Medicaid long-term care services. This means that if one is in violation of the penalty period, there will be a period of ineligibility for nursing home care, as well as services under Home and Community Based Services (HCBS) Waivers. Services and supports under HCBS Waivers may include adult day care/adult day health, in-home personal care, respite care, etc. Having said that, penalty transfers may not extend to all states for community (non-nursing home) Medicaid, such as in New York.
In order to circumvent violating the Medicaid look-back period and being penalized, there are strategies that are utilized to help families retain some of their assets or to help them gain Medicaid eligibility. However, it is highly recommended that one consult a professional Medicaid planner prior to proceeding with any of the strategies that follow, as they can be exceedingly complex. Disqualifying a loved one, unfortunately, is easy to do and difficult to rectify.
Caregiver agreements, also referred to as life care agreements, elder care contracts, or long-term care personal supports services agreements, are contracts that lay out the caregiving relationship between an elderly individual and a caregiving relative or friend. This formal agreement allows seniors to compensate their relative/friend for care provided and “spend down” assets without violating the Medicaid look-back period. These contracts also allow seniors to receive needed care that Medicaid does not cover, while also providing family members or close friends with needed compensation. Note, caregiver contracts may remain in effect even after the elderly individual enters a nursing home facility, with the caregiver serving as the advocate of the senior.
Careful drafting of the contract (which is generally for the duration of the senior’s life) is imperative and should include the date services began, caregiver responsibilities, whether it is shopping for essentials, providing transportation, meal preparation, or personal care assistance, and the hours a caregiver will work. In addition, the caregiver must keep a log of duties performed, the hours worked each day, and maintain written invoices for the services.
The contract needs to state the amount of compensation (which must be reasonable for the duties provided) the caregiver will receive in return for duties / services provided. The payment for a caregiver agreement is sometimes paid in advance. Therefore, when this is the case, the calculation must be figured based on a reasonable life expectancy. When the senior passes away, Medicaid requires any remaining (unearned) compensation to be paid to them. Read more about caregiver agreements.
Annuities, also referred to as Medicaid Annuities or Medicaid Compliant Annuities, are a common way to avoid violating the Medicaid look-back period. With an annuity, an individual pays a lump sum in cash and in return they or their spouse receives monthly payments for the duration of that person’s life or for a set number of years. Annuities are Medicaid compliant because they turn assets into income, thereby lowering the assets the Medicaid candidate has to an amount below the Medicaid eligibility limit. Purchasing an annuity during the look-back period is not in violation of Medicaid’s rules. Having said that, each state has slightly different rules with regards to Medicaid annuities and their beneficiaries, and there is no shortage of annuity salespersons. However, they may not be well informed about the Medicaid compliance of their products. Proceed with caution.
Deferred annuities, which mean the investor chooses to delay payments until a specified period of time, are considered assets that can be used towards the cost of long-term care, and therefore, cannot be used as a strategy to avoid violating the look-back rule.
With Irrevocable Funeral Trusts, a specific amount of money, which is limited by state, is set aside for the sole purpose of funeral and burial costs. This not only helps applicants “spend down” excess assets without violating Medicaid’s look back period, it also provides peace of mind knowing that these expenses are already covered. An irrevocable funeral trust can be purchased for both the applicant and their spouse. Learn more about irrevocable funeral trusts here.
Via an Undue Hardship Waiver, the Medicaid Penalty Period can be waived. For instance, if an individual has violated the Medicaid look-back period but will be without basic needs, such as food and shelter, due to this violation, one can request this waiver. However, one must first exhaust all methods of recovering the assets that were transferred, including legal options. It’s important to note, it is very difficult to be granted an Undue Hardship Waiver.
If a Medicaid applicant has transferred assets under fair market value during Medicaid’s look-back period and those assets can be recuperated, the penalty period will be reconsidered even after the establishment of the penalty period. In some states, this might mean all assets transferred to all people, which in some cases are multiple assets and several people. That said, if some assets, but not all the assets, are recuperated, the entire penalty period is still carried out. However, in other states, partial recuperation might shorten the period of Medicaid ineligibility. Please note that returned assets will put an applicant over the asset limit, but these excess assets can be used to pay for long-term care and the applicant can then reapply.
The Medicaid Look-back Period is a very serious and complicated matter. The best way to avoid violating this period and receiving a penalty of Medicaid ineligibility is to consult a Medicaid planner prior to gifting or transferring any assets. A Medicaid planner can also offer assistance if you have violated the look-back period. One can learn more or be connected with a Medicaid planner here.