Attorneys, Elder Law

"Look Back" and Medicaid eligibility for long term care By Alex L. Moschella, Esq. The enormous challenge of paying for long term care has led many elderly individuals to resort to intentionally "impoverishing" themselves in order to qualify for Medicaid coverage (called MassHealth in Massachusetts). By "spending down" assets or transferring them to family members or others, an individual can appear to be insolvent, and thus eligible to receive financial assistance for nursing home care or at-home long term care services. Naturally, federal and state officials frown upon this practice and have put restrictions in place to curb it. The rules that govern such transfer of assets have significantly tightened. The "look-back" period during which asset transfers can be scrutinized has been extended from three to five years. This puts an additional burden on individuals and families, particularly those in the middle-income bracket, to properly plan and prepare for potential long term care needs. What disqualifies a transfer? - There is a long list of asset transfers that the State Office of Medicaid considers disqualifying. These include the transfer of a resource such as a house, cash, IRA, valuables, etc., for less than fair market value. Medicaid may also consider as a disqualifying transfer any action taken to avoid receiving a resource to which the individual or spouse is entitled. A disqualifying transfer may also include any action taken that would result in making a formerly available asset no longer available. The most important of the new rules involves transfers made within the 60-month "look-back" period (formerly 36 months for an individual and 60 months for a trust) prior to applying for Medicaid. The purpose of the look-back period is to review financial records and, if necessary, penalize the applicant or spouse for gifts or sales (for less than fair market value) made prior to applying for Medicaid, when it was arguably foreseeable that coverage would be needed. Penalty period may be extended as well: There is a formula for calculating the period of ineligibility for Medicaid once a disqualifying transfer is identified. The state takes the fair market value of the transfer in question (asset value or cash amount) and divides it by the average daily cost of nursing home care. A second important rule added by the new law, and the change that has the most devastating effect upon elders and their families, requires that, if the disqualifying transfer occurs within five years of the date that coverage is needed for nursing home care, the disqualification period will not start until the individual actually gifts away the excess assets, is receiving nursing home care, files a Medicaid application for long term care, and is denied eligibility solely due to the transfer. The penalty clock does not start ticking until this entire process is complete. The ineligibility period for large transfers can be considerable if the gifting is made less than five years prior to the need for nursing home care. What about Medicaid planning gifts and gift and estate taxes? - Much confusion exists as to the relationship between Medicaid penalties due to gifting, and taxation involving gifts and estates. In fact, they are really two different concepts independent of each other. Although both need to be considered when asset protection planning is done. Medicaid has gifting penalties, and the IRS requires reporting and sometimes tax payments. But that is the only relationship between them. IRS exemptions are not recognized by the Medicaid agency. Summary - Given the complex nature of Medicaid eligibility and the relationship of gifting to tax laws, there is no substitute for the advice of an elder law attorney. Each individual's situation varies significantly in facts and figures, and specific advice is the best method of ensuring that your concerns and problems are addressed properly. Disclaimer: While the information contained in this article is intended to be accurate, it is nonetheless presented with the understanding that it does not constitute legal advice or professional assistance in any manner. Independent legal advice by an attorney must always be undertaken before recommending any action or inaction based on this article. Alex Moschella is a partner in the law firm of Moschella & Winston, LLP, which specializes in elder law. It is located at 440 Broadway, Somerville, Mass., 02145. For more information call 617-776-3300 or visit online at www.moschellawinston.com.

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