Ted Gudorf (00:07.128)
Have you heard of the five -year Medicaid rule? Are you unsure about what it means and how it might affect a loved one's qualification for Medicaid? If you're nodding your head right now, you're not alone. Hello, everyone. I'm Ted Goudarff, a board -certified estate planning attorney in Dayton, Ohio. And today, we're diving deep into a topic that confuses many, the five -year look -back rule for Medicaid. This rule is crucial for anyone considering long -term care planning.
So let's break it down and explore its implications. Before we can delve into the five -year rule, it's essential to understand the basics of how Medicaid relates to long -term care. Now, most people are aware that if someone enters a nursing home with more than $2 ,000 in their name, what we call countable resources, they're required to pay for their care out of pocket. This is a fundamental aspect of Medicaid eligibility.
that forms the basis for much of what we'll discuss today. Now let's put this into perspective. Nursing home costs vary across the country, but they're universally expensive. In many areas, you're looking at costs exceeding $7 ,500 or more per month for a single person. For married couples, both requiring nursing home care, you can easily double that figure. We're talking about
$12 ,000 to $15 ,000 per month. With costs this high, it's easy to see how quickly a lifetime of savings can be depleted. Many people have heard that their home doesn't count as an asset for Medicaid purposes. While this is partially true in most circumstances, it's also a common source of misunderstanding. So yes, the home
is not considered accountable resource for initial Medicaid eligibility if someone can sign and intent to return home. This means that people can own a home and still qualify for Medicaid provided they've depleted their other assets. The rationale behind this exception is straightforward. If the person in the nursing home recovers, they need a place to return to. However,
Ted Gudorf (02:33.88)
And this is crucial. While the home doesn't affect the initial eligibility in these cases, it doesn't mean it's protected in the long run. Here's the catch. If Medicaid pays for nursing home expenses, they place a lien on the Medicaid recipient's estate. What does this mean in practical terms? Well, after the person passes away, the home will likely need to be sold to repay Medicaid for the care provided.
So while the home doesn't prevent you from qualifying for Medicaid, it's not entirely protected from Medicaid estate recovery. Now, let's get to the heart of our discussion, the five -year look -back rule. Most people realize you can't simply transfer all of your assets out of your name right before entering a nursing home and expect to qualify for Medicaid. This is where the five -year rule comes into play.
Now before we dive into the specifics of the current rule, it's worth noting how it has evolved over time. This helps illustrate that these regulations are not set in stone and can change based on policy decisions. A couple of decades ago, the look back period was just two years. It then increased to two and a half years. Later, it became the three years for transfers to individuals and five years for transfers to trusts.
Finally in 2006, it was standardized to a five -year look -back period for all transfers. This evolution shows that policymakers have consistently sought to balance the need to provide care for those who truly need it with preventing abuse of the system. So what exactly is the five -year look -back rule? In essence, it's a look -back period when someone applies for Medicaid.
to cover nursing home costs, Medicaid will review all financial transactions made in the five years preceding the application. Any transfers of assets made during this period for less than fair market value can result in a penalty period during which the applicant is ineligible for Medicaid coverage. The purpose of this rule is to prevent people from giving away their assets
Ted Gudorf (04:59.19)
or selling them at a discount just to qualify for Medicaid. It's designed to ensure that individuals use their own resources for their care before turning to government assistance. At this point, it's worth addressing a common confusion, the difference between Medicaid and Medicare. These terms are often used interchangeably by the public, but they refer to two very distinct programs.
Let's talk about Medicare. This is health insurance for people 65 and older. It's important to note that Medicare does not pay for long -term care in a nursing home setting unless someone is getting rehab or hospice care. Medicaid, on the other hand, this is the program that can pay for long -term custodial skilled care in a nursing home, but only if the person qualifies based upon financial need.
Understanding this distinction is crucial because it highlights why the five -year rule and Medicaid planning are so important. Many people mistakenly believe that Medicare will cover their long -term care needs, only discover that it's too late and that it doesn't. Now let's delve deeper into Medicaid eligibility. The $2 ,000 limit on countable resources is just one part of a complex set of rules.
Here's a more comprehensive look at what counts as resources for Medicaid purposes. Cash in bank accounts, such as checking, savings, or CDs. Investments, like stocks, bonds, mutual funds. Retirement accounts, IRAs, 401ks. Real estate, other than your primary residence. Business interests, including LLCs.
Now all of these are more often than not considered to be countable resources. There are a few exemptions, but the bottom line is Medicaid requires that they be converted to cash at fair market value and spent down before coverage kicks in. Some people might think that Medicaid rules are loose or easy to circumvent. This couldn't be further from the truth.
Ted Gudorf (07:29.358)
The Medicaid manual is an extensive complex document. To give you an idea, in Ohio, there are 25 pages in the long -term care Medicaid manual just dedicated to transfers of resources for less than fair market value. These 25 pages cover a wide range of topics, definitions of what constitutes a transfer, exceptions to transfer penalties, how penalty periods are calculated, when penalty periods begin,
provisions for returning transferred resources? This level of detail underscores the complexity of Medicaid rules and the importance of professional guidance when navigating them. When someone has made transfers within the five -year look -back period and is facing the need for nursing home care, they typically have three options. One, delay the application. They can choose not to apply for Medicaid immediately
waiting until the full 60 months or five years have passed since the transfers were made. Once this period is up, they can apply without those transfers affecting their eligibility. Number two, you can apply and accept the penalty. They might decide to apply for Medicaid knowing they'll be denied due to the transfers, but this starts the penalty period, which you'll have to wait out before becoming eligible.
The length of the penalty period depends on the value of the assets transferred within the five -year look back. Number three, a return of assets. In some cases, in some jurisdictions, you might try to have the transferred assets returned to the owner. They would then need to spend these assets down to the Medicaid eligibility limit before qualifying for cover.
The best choice among these options depends on various factors, including when the transfers were made, the value of the transfers, and the individual's current health and financial situation. When people do decide to transfer assets to start the five -year clock, they generally choose between transferring to individuals, usually family members, or to a trust. After careful consideration, most opt for trust.
Ted Gudorf (09:54.702)
for two primary reasons. One, control. Transferring assets directly to individual means losing control over those assets. If you give your assets to your children, for example, those assets could be at risk if your child goes through a divorce, faces bankruptcy, or has other issues with creditors. Trust, on the other hand, offer a way to maintain more control over the assets.
Let's talk about tax implications. Trust can offer significant tax advantages, both in terms of income tax and capital gains tax, whereas transfers to individuals, you lose these tax benefits. Now, the specifics of these tax benefits are complex and beyond the scope of this discussion, but they are a crucial consideration in many cases. If there's one key takeaway from this discussion,
It's the critical importance of planning ahead. Far too often, I encounter situations where families have waited until it's too late to take effective action. I've had countless conversations that start with, Ted, I've been telling my mom to do this for years, but she never wanted to, and now look where we are. Or, I wish we had known about this five years ago.
The five -year rule means that effective planning needs to happen well in advance of any potential need for long -term care. Since none of us can predict when that need might arise, it's wise to start considering these issues as early as possible, often when people are in their 60s, but certainly no later than when you turn 70. It's crucial to understanding that applying for Medicaid is not a simple process.
The application is thorough and designed to uncover any attempts to hide or transfer assets improperly. Here are some key points about the application process. First, there is detailed questioning. The application includes very specific questions about asset transfers. For example, one question on the application in the Ohio Long -Term Care Medicaid application asks, have you, anyone in your household,
Ted Gudorf (12:15.278)
or anyone acting for them given away, sold, or transferred ownership of any item of value, including but not limited to land, houses, life insurance, vehicles, or bank accounts in the past 60 months. Number two, extensive documentation. Applicants must provide a wide range of supporting documents, including
bank statements, property records, and more, oftentimes for the full five -year period. Next, verification rights. By signing the application, the applicant gives Medicaid the right to verify all information provided. This can include checking with the IRS, property records offices, and other sources. Lastly, legal implications.
The application is signed under penalty of perjury. Providing false information or withholding information from the government is considered fraud, which can have serious legal consequences. Some people might be tempted to try to hide assets or otherwise circumvent Medicaid rules. This is an extremely risky approach that I strongly advise against. Here's why. The legal risk, as mentioned,
Medicaid application is signed under penalty of perjury. Attempting to hide assets or provide false information is fraud, which can result in criminal charges. If fraud is discovered, not only will you be denied Medicaid, but you may be required to repay any benefits received and could face substantial fines. Moreover, there's the overall ethical consideration. Beyond the legal and financial risks,
the ethical considerations have to be taken into account. After all, Medicaid is designed to help those truly in need. Attempting to abuse the system takes resources away from those who genuinely require assistance. There is an impact also on the family. Any fraudulent activity can have long lasting impacts on your family, both in terms of your legal consequences and potential family conflicts.
Ted Gudorf (14:42.168)
Well, as we've explored throughout this discussion, the five -year look -back rule for Medicaid is just one part of a complex system designed to provide long -term care for those in need while preventing abuse of the system. Navigating these rules requires careful planning, preferably well in advance of any need for long -term care. For those who plan ahead, it's possible to protect assets, ensure quality care,
and leave a legacy for your loved ones. Those who wait until the last minute or attempt to circumvent the rules often end up frustrated, potentially losing everything they worked for and causing stress for their families. The key takeaways are, understand the basics of Medicaid and how it differs from Medicare. Recognize the importance of the five -year look back period. Start planning early.
ideally at least five years before any potential need for long -term care. Consider the pros and cons of different asset protection strategies, including trust. Be aware of the complexity of Medicaid rules and applications. Seek professional guidance to navigate these complex issues, both legally and ethically. Remember, the goal of Medicaid planning isn't to, quote, beat the system.
but to ensure that you or your loved ones can receive necessary care without unnecessarily depleting all your assets. With proper planning and professional guidance, it's possible to achieve this goal while staying within the bounds of the law.
Ted Gudorf (16:44.994)
Remember, the goal of Medicaid planning isn't to beat the system, but to ensure that you or your loved ones can receive necessary care without unnecessarily depleting all your assets. With proper planning and professional guidance, it's possible to achieve this goal while staying within the bounds of the law. If you or a family member are facing the challenges of long -term care, or if you simply want to be proactive in your Medicaid planning, we're here to help.
I'd like to extend a special offer to our Ohio viewers, a free 30 -minute Medicaid strategy session with one of our expert elder law attorneys. During this session, we'll review your unique situation, answer your specific questions, and determine if you qualify for an Ohio Medicaid application. This personalized guidance could be the key to securing your financial future and ensuring access
to the care you or your loved ones need. Don't let the complexities of Medicaid rules overwhelm you. Take advantage of this opportunity to get professional, tailored advice at no cost. To schedule your free Medicaid strategy session, simply call our office or click the link in the description below.