“Planning Ahead for Medical Assistance”: A Three-part Series (PART I: “The ‘Look-Back’ Period”)

Medical Assistance (MA) is a maze of requirements and rules. Some of those requirements and rules have significant ramifications if not understood and planned out in advance. This three-part series is an effort to “daylight” some, (but not all!), of the most important requirements for which there must be advanced planning in order to avoid unpleasant surprises and unexpected outcomes. Elder Law attorneys often specialize in this area of practice. If you believe that your circumstances either now or in the future may include paying for long-term care using Medical Assistance, asking an Elder Law attorney now can assist you in navigating this maze and preparing yourselves and your loved ones for the next steps.

(PART I: “The ‘Look-Back’ Period”)

The date of application for MA establishes the beginning and the end dates for a five-year (60 month) ‘look-back’ period.  During the ‘look-back’ period, the Department of Human Services (DHS) will determine if the applicant has made any uncompensated transfers during this time frame. If the applicant has done so, the applicant either has to find of way of getting the full value of that transfer back or deal with a financial penalty imposed that equals the amount of the transfer made.  Let me unpack a few things first:

What is an uncompensated transfer?  An uncompensated transfer is any transfer of income or assets that is for less than fair market value (FMV).  That means, if you sell something for what it’s worth, this is not uncompensated. But, if you sell your two-year old Lexus to your nephew for $25, THAT is an uncompensated transfer because it is for less than FMV.  Gifts at the holidays to your grandkids (writing them a check, for example) are uncompensated transfers, no matter how small. And, the DHS will expect you to report those transfers accurately and completely.  There are some exceptions.  Most notably, gifts to charitable organizations, church giving, and other religious groups may be ignored if you can provide proof that you’ve had a pattern of giving to this entity that has nothing to do with your ultimate need to qualify for MA.

Why is it so important to show proof of the pattern?  Because the DHS establishes this ‘look-back’ period as a way to say, “If you’ve made any uncompensated transfers within this time frame, there is a rebuttable presumption (in other words, you can try arguing it, but it will be difficult to win the argument) that you made these uncompensated transfers with the intent to avoid using those assets for your long-term care.”

How was I supposed to know I would need MA five years ago?  Well, therein lies the rub!  I try to explain to my clients that if your age, your health, and your assets suggest even remotely that you and/or you and your spouse may need to qualify for MA down the road, understanding the risk of making transfers to your own detriment later on is very important. We don’t have crystal balls, and we don’t know what will happen and when. It is for this reason that understanding this ‘look-back’ period and the risks involved when thinking about making uncompensated transfers to family and loved ones is so important.

Estate Planning and Medical Assistance:  Those who have made an estate plan and talked with financial advisors know that there are a number of rules to follow to avoid tax consequences when transferring assets to loved ones during life and after you’ve passed away.  These rules, of course, remain important when navigating tax issues. But, it is also important to understand that those tax rules do not often coincide with MA rules.  Here’s an example:  I often get asked, “But can’t I gift $14,000 to my grandson this year?”  Yes, you can, and you’ll even avoid a gift tax on it because of the tax rules, as you already understood. But, that gift tax avoidance has nothing to do with an application for MA.  If you made that same gift to your grandson this year and you needed to pay for skilled nursing care by applying for MA next year, this gift would also be an uncompensated transfer.

What is the penalty for making the uncompensated transfer?  The penalty is, upon your eligibility for MA (meaning, you have both medically/physically and financially qualified for MA), you will need to continue to pay out of your own pocket until you reach the amount you transferred.  The way to figure this out is to take the amount you transferred and divide it by the average monthly amount of nursing home cost. For this length of time, you’ll be penalized.  One way or another, you’ll account for that transfer – either by asking for the full value of it back, or by paying the penalty.

Knowledge is key!  When you understand the issues and the risks, you can make informed decisions.  When you make informed decisions, you can avoid many unpleasant surprises.  Elder Law attorneys can be very helpful in this planning process by assisting individuals with understanding their choices and potential outcomes down the road, and avoiding these common misunderstandings while navigating the pressures of long-term care.

ALL READERS:     This blog is not, nor shall it be deemed to be, legal advice or counsel. This blog does not create an attorney-client relationship with any reader.  It is designed to encourage thoughtful consideration of important legal issues with the expectation that readers will seek professional advice from a licensed attorney.

Contact Bridget-Michaele Reischl at:

DECORO LAW OFFICE, PLLC