Why Is The “Five-Year Look-Back” Critical in Elder Law/Nursing Home Planning?

By Jennifer Simons, Esq. and Dennis McAndrews, Esq.

 

Medicare pays for very little nursing home care, and to qualify for Medical Assistance (“MA”–as Medicaid is known in Pennsylvania) to pay for nursing home or other long-term costs, the federal government has long established limits on resources and income for individuals to qualify for payment of these costs through the MA system.  To discourage the natural inclination of individuals to deplete their assets through gifts or transfers to trusts, Congress enacted “Look-Back rules” which in its current form requires that certain transfers occurring within five years of a Medicaid application result in a period of ineligibility for MA.

 

The two types of transfers that are subject to the five-year look-back are gift transfers and transfers to trusts.  Except for certain exempted transfers under this look-back rule (to be discussed in another MLO Minute), transfers within this five-year look-back period result in a period of ineligibility for MA after the MA application has been filed.  The period of ineligibility is based upon the value of these transfers divided by the average daily rate for private pay nursing home care in Pennsylvania, which equals the number of months of ineligibility.  Consequently, substantial caution should be taken in considering gifts of significant value during a potential five-year look-back period.  In some circumstances, returns of the gift or of the trust transfers back to the Medical Assistance applicant can erase the period of ineligibility and allow for other forms of Medicaid planning such as the purchase of an annuity or purchase of exempt resources.  However, it is always better to avoid “reverse engineering” of this type when possible.

 

Some examples of exceptions or exclusions to the five-year look-back period are transfers for fair market value, certain transfers to a disabled individual, transfers between spouses, some types of intrafamily loans, “half-a-loaf” gifting with a Medicaid compliant annuity, and transfer of real estate to a sibling with an equity interest.

 

We are fully able to explore every type of arrangement to best serve your family where nursing home care or other long-term care arrangements become necessary.  We look forward to working with you and to develop the best plan to shelter as much family resources as possible.