The Medicaid Lookback Penalty
Can you give away your assets to qualify for Medicaid?
If a disabled individual’s assets are worth too much to qualify for Medicaid long-term care benefits, that disabled individual could simply give away her assets until her asset count is under the Medicaid limit. The disabled individual could, for example, give away assets to close family members. However, each gift will result in a lookback penalty and delay the disabled individual’s ability to receive Medicaid benefits. Thus, the planning technique of giving away assets is significantly restricted in its utility.
The Medicaid lookback period is sixty months before the month of application.[1] Generally, if at any time within the lookback period the applicant makes any transfer for less than fair market value for the purpose of becoming eligible for benefits, the applicant must be denied benefits and a lookback penalty is incurred. The lookback penalty is an extension of the period of ineligibility. This length of the penalty is determined by taking the value of the uncompensated transfer and dividing it by the average monthly cost of private nursing home care. The resulting quotient measures the length of the lookback penalty in months.[2] In other words, the length of the penalty is approximately equal to the amount of time the disabled individual could have paid for her own long-term care had she not transferred the assets for less than fair market value.
Any transfer made for less than for fair market value is presumed to be made for the purpose of becoming eligible.[3] However, that presumption is rebuttable.[4] And if that presumption is rebutted, then no lookback penalty is incurred.[5]Additionally, gifts can be returned to the grantor to eliminate the lookback penalty.[6] However, the most prudent course of action is generally to avoid all transfers for less than fair market value during the lookback period, unless the disabled individual need not be concerned with waiting out the penalty.
The scope of transfers that trigger a lookback penalty is broad. Adding a joint owner to property without receiving fair market value in return can result in a lookback penalty.[7] Additionally, transfers to an irrevocable trust that the grantor no longer has access to triggers the penalty.[8] However, no such penalty is triggered when a transfer is made to a properly drafted first-party special needs trust.[9]
Although transfers for less than fair market value with the intent to qualify for Medicaid generally results in a lookback penalty, the practice is not prohibited.[10] The price to be paid is waiting out the penalty before becoming eligible to receive benefits. Thus, if a disabled individual wishes to plan for long-term care far enough in advance, this technique may be worth considering.
However, if incurring a lookback penalty is not an option, then there are other ways to reduce your assets and qualify for Medicaid. For example, with the help of an estate planning attorney, you could begin spending down assets or putting your assets into a special needs trust.
[1] 42 U.S.C. § 1396p(C)(1); ESS Public Assistance Policy Manual § 1640.0608.
[2] ESS Public Assistance Policy Manual § 1640.0618.
[3] Fla. Admin. Code r. 65A–1.712(3)(d); Longhi v. State, Dept. of Health and Rehabilitative Services, 691 So. 2d 583, 584 (Fla. 1st DCA 1997).
[4] SSA POMS SI 01150.125.E.
[5] SSA POMS SI 01150.125.A; ESS Public Assistance Policy Manual §§ 1640.0606, 1640.0616.
[6] HCFA Transmittal No. 64, § 3258.10.C.
[7] SSA POMS SI 01150.001.B.3.
[8] ESS Public Assistance Policy Manual § 1640.0576.04.
[9] 42 U.S.C. § 1396p(d)(4)(A), (B), C(iv).
[10] Thompson v. Dep't of Children & Families, 835 So. 2d 357, 360 (Fla. 5th DCA 2003).