Estate Planning

Medicaid Look-Back Rules Both Medicare" and Medicaid" are programs established by federal law that are intended to assist individuals with the payment of medical expenses Normally, as a matter of entitlement, Medicare is designed to assist older individuals based on their contributions to Social Security. Medicaid is a medical benefits program only for the aged blind, and disabled who are in need. Medicaid covers long-term nursing home costs while Medicare does not. In order to qualify for Medicaid, an individual may own no more than a home, personal belongings, a car, and a small amount of savings and can have an income of only a few hundred dollars per month. The precise levels of income and resources that a Medicaid applicant may maintain and still qualify for Medicaid are set by individual states.

If an individual needs nursing home care and does not already qualify for Medicaid, his assets may be quickly exhausted and his heirs will not receive an inheritance. Given these circumstances, it is understandable that the focus of Medicaid planning has been on the reduction, or "spending down," of assets so that qualification for Medicaid is achieved.

The primary obstacle to such an "impoverishment" strategy is raised by the Medicaid "look-back" rules. If an asset is given away or sold by the Medicaid applicant for less than its fair market value, the Medicaid administrator must still count the transferred asset along with the Medicaid applicant's other assets if the transfer was made within 36 months (three years) preceding the date of the application. The look-back period is 60 months (five years) for assets transferred to a trust for less than fair market value. When such transfers are added back to other countable assets owned by the applicant, the total will often exceed the maximum level allowable for Medicaid qualification and result in a period of ineligibility.

The rules for calculating the waiting period are complex, but are generally intended to delay the application for Medicaid benefits until the look back period is free of transfers that were for less than fair market value. The greater the value of the transfers that have occurred during the look-back period, the longer the period of ineligibility for Medicaid benefits. However, the transfer of a homestead for less than fair market value would not be counted if the transfer were made to the individual's spouse, to the individual's child who is under 21 years of age or who is disabled or who provides care to the individual, or to a sibling who has an equity interest in the homestead. Assets other than the homestead are exempt from the look-back/ineligibility period rules if they are transferred to a spouse. to a child who is under 21 or who is blind or disabled, or to a trust for the sole benefit of a disabled person who is younger than 65.

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