How To Avoid The 5 Year Lookback For Medicaid
The Medicaid 5-Year Lookback: How to Plan for it in Rhode Island
Medicaid is a government program offering free or low-income healthcare to people with limited income. For many seniors, Medicaid assistance may be the only way they can afford long-term care without placing a financial burden on their families. However, Medicaid has an income cutoff, and the mandated 5-year lookback period can present a challenge for those who want to qualify.
Below, discover what the 5-year lookback is and learn how you can begin planning for it on your Medicaid journey.
Rhode Island Medicaid eligibility
Every state has its own income cutoff to qualify for Medicaid. In Rhode Island, the income cutoff is $21,600 per year for individuals. They must also have under $4,000 in total assets. For spouses applying to Medicaid jointly, the income cutoff is $5,484 per month and $8,000 in total assets.
What is the Medicaid 5-year lookback period?
The “five-year lookback period” is a timeframe that Medicaid uses to determine if you meet your state’s income and asset qualifications for the program. They will look back through the previous 60 months of your financial records to see if you’ve liquidated assets in order to qualify. For example, if you gave away your house to a grandchild or sold it for a price under its fair market value.
Even if you made a gift in good faith, Medicaid will automatically assume that you made the transfer to hide or shift your assets and will likely decide that it violates the lookback period.
What’s the penalty for violating the 5-year lookback period?
Violating the lookback period can trigger a period of ineligibility. The time length of the period depends on the exact specifics of the state. But, in general, the length of the penalty period is decided by the total amount that you or your spouse gifted or sold, divided by the fair market value of an average private nursing home room.
Here’s a quick example. In Rhode Island, the average annual cost of a private nursing home room is $120,450, or around $10,000 per month. So, if you gave your child a good deal on your house and sold it to them for $100,000. 100,000 divided by 10,000 equals 10. So, under the five-year lookback period, you’d then be ineligible for Medicaid for approximately a ten-month period.
Are there Medicaid lookback exemptions?
Some assets are exempt from the five-year lookback under a Rhode Island Medicaid application in certain scenarios.
For example, your house may not be subject to the five-year lookback if it the equity is $688,000 or under and you plan to return to it after your Medicaid treatment. However, this might come with a risk. If you’re not able to return to your home, Medicaid might place a lien on your house to take possession of it after your death, leaving your beneficiaries with nothing.
How to avoid the Medicaid 5-year lookback
If all this sounds overwhelming, here’s some good news: There are strategies you may be able to use to prepare for the five-year lookback period. For example, it may be acceptable to “spend down” assets, set up trusts, or transfer assets to qualifying family members. Here are a few of the most common tools used during Medicaid planning.
Irrevocable Trusts
An irrevocable trust is a type of estate-planning tool that many seniors use in order to shield assets from Medicaid. Under an irrevocable trust, your assets are no longer considered “yours.” Instead, a person called the “Trustee” holds the legal right to the assets within the trust and can distribute them to your trust beneficiaries after your death.
However, it’s crucial to establish the trust before the five-year lookback period begins, So be sure to plan ahead.
Spousal Transfer
If only one person in a married couple applies for Nursing Home Medicaid, then they may be able to transfer some assets to their spouse without penalties. This is called the Community Spouse Resource Allowance (CSRA.)
In Rhode Island, the maximum amount of assets that a non-applicant spouse can possess is $148,620. The standard income and asset cutoffs still apply to the spouse applying for Medicaid.
Child transfer
If you have a child that’s under 21, disabled, or legally blind, you may be able to transfer assets — such as your home — to them without penalty. It may also be possible to set up an irrevocable trust for them without violating the lookback period.
Caregiver child transfer
Additionally, there may be other ways to transfer your home to an adult child if they acted as your caregiver with a rule called the “caregiver exception.”
To qualify, the adult child must:
● Have been your primary caregiver for at least 2 years before your admission to assisted living or a nursing home
● Have lived in your home and provided adequate care that prevented you from having to relocate to an elder care facility.
Sibling transfer
If you have a sibling that partially owns your home and has lived there at least one year before you enter a nursing home, they may be able to take ownership of the house under a rule called the “sibling exception.”
Spending down assets
There are also ways to “spend down” assets while planning for Medicaid. Some of the most common methods include:
● Making home modifications — like adding a ground floor bedroom or putting in a stairlift.
● Paying off debt.
● Pre-paying for funeral or burial expenses.
An RI Attorney you can trust
Medicaid law can feel complicated and overwhelming. Many people accidentally violate the terms of the lookback period without meaning to, barring them from getting the financial help they need. So, it’s a good idea to start planning for the future early with the help of a Rhode Island estate planning attorney.
If you have questions about planning for Medicaid or need someone to help you along the journey, Warwick attorney Brian Nappa is here for you. He’ll help you understand the best possible solutions to plan for the future and help your family avoid any unnecessary financial stress and hardship.
Don’t face this daunting task alone. Contact his office today to get started planning for