Planning for long-term care can feel complicated, especially when you’re trying to protect your assets.

Medicaid, a government program that helps cover healthcare costs for individuals with limited income and resources, becomes crucial as care needs increase.

One important rule to understand is the Medicaid “look-back period,” which examines your financial history before applying for benefits.

Missteps during this period can result in costly delays, so it’s essential to be prepared.

At Salines-Mondello Law Firm, PC, we aim to help you plan for your long-term care needs and secure Medicaid benefits without unnecessary penalties, giving you peace of mind as you plan for your future.

We aim to provide peace of mind for families by helping them protect their assets and secure long-term care.

Medicaid Look-Back Period

When you apply for Medicaid, the program will examine your financial history to determine whether you’re eligible for benefits.

Medicaid has an asset limit that applicants must meet to qualify, and the look-back period is designed to prevent people from simply giving away or selling assets below their true value just to qualify.

Typically, Medicaid looks at any financial transactions made in the five years before your application for long-term care.

This five-year window is known as the Medicaid look-back period, and it’s enforced to ensure individuals don’t artificially impoverish themselves to qualify for government assistance.

Medicaid wants to know if you’ve made any transfers of property, gifts, or other actions that might affect your eligibility.

When Does the Look-Back Period Start?

The clock starts ticking on the look-back period from the day you submit your Medicaid application for long-term care. If you’ve transferred any assets within the five-year window, those actions will come under scrutiny.

Transfers Under Review

Medicaid doesn’t just look at your transfers but also those made by your spouse. Any transfer of assets—whether it’s money, property, or even gifts—can be subject to penalties.

State-Specific Rules

In North Carolina, as in most states, the Medicaid Look-Back period is 60 months (5-year rule). This means that when an individual applies for Medicaid, a caseworker will review all financial records from the previous 60 months to assess the applicant’s eligibility.

Types of Transfers Under Review

Medicaid will review gifts, sales below fair market value, and payments to caregivers who don’t have formal contracts in place. If you’ve set up a trust or transferred money, that will also be reviewed.

Impact of Transfers

If you’ve transferred assets during the look-back period, Medicaid may impose a penalty period. This penalty delays your eligibility for Medicaid long-term care services, such as nursing home care.

The penalty period is calculated based on the value of the assets transferred and the current average monthly cost of nursing home care in your state (Divestment Penalty Divisor).

For example, if you transferred $60,000 within the look-back period, and the current

North Carolina Divestment Penalty Divisor is $7,110, your Medicaid eligibility could be delayed by 8-9 months.

During this penalty period, you would be responsible for covering the cost of your care out of pocket.

Medicaid Programs Subject to Look-Back

It’s important to note that the look-back period doesn’t apply to all Medicaid programs. Primarily, it applies to nursing home Medicaid and Home and Community-Based Services (HCBS) waivers, types of long-term care coverage.

These programs require a financial review to ensure that applicants aren’t transferring assets to meet Medicaid’s eligibility limits. However, regular Medicaid programs for the aged or disabled, which may provide healthcare coverage but not long-term care, are not subject to the look-back period.

Ongoing Look-Back for Beneficiaries

Even after you’ve qualified for Medicaid, you can still be penalized if you violate the look-back rules later on.

For instance, if you start gifting assets or transferring property after your Medicaid approval, the state may impose new penalties.

This could lead to lost Medicaid benefits or further delays in receiving coverage. That’s why it’s crucial not to make asset transfers or give large gifts while you’re a Medicaid beneficiary until you’ve consulted an attorney to ensure it won’t affect your eligibility.

Calculating the Penalty Period

If Medicaid determines that an asset transfer was made during the look-back period, it calculates a penalty. This penalty is based on the amount of the transfer divided by the current average monthly cost of nursing home care in your state (Divestment Penalty Divisor)

If you made uncompensated transfers of $30,000, for example, and the North Carolina Divestment Penalty Divisor  $7,110 as it is currently, , your penalty period would be 4-5 months.

During this time, Medicaid won’t cover your long-term care costs, and you’ll need to find alternative ways to pay for care until the penalty period ends.

The Penalty Divisor

The penalty divisor in North Carolina for Medicaid is based on the average cost of nursing home care in the state. As of 2023, the penalty divisor in North Carolina is approximately $7,110 per month.

No Maximum Penalty

There’s no limit to how long the penalty period can be. If the transfer was significant enough, it could delay your eligibility for quite some time.

Exemptions and Exceptions

Not all transfers will trigger a penalty; if done correctly,several exceptions allow you to transfer assets without worrying about the look-back period.

Allowable Transfers

For instance, transfers between spouses are typically exempt. You can also transfer assets to a child who is disabled or blind, or to certain trusts set up for disabled individuals.

Hardship Waivers

In very  rare cases, you may be able to apply for a hardship waiver if the penalty would create significant hardship and no other options are available.

Common Pitfalls and Unintentional Violations

There are a few common mistakes that people often make when dealing with Medicaid’s look-back period.

Gifting and the IRS Exemption

Some people think that gifts under the federal gift tax exemption are safe from Medicaid’s look-back period, but they’re not. Even small gifts can result in a penalty.

Lack of Documentation

If you’ve sold a titled asset, such as a car, for instance, make sure you keep all the proper paperwork. Without it, Medicaid might treat the transaction as a gift, and that could trigger a penalty.

Irrevocable Trusts

Even setting up an irrevocable trust during the look-back period can cause issues. Any assets you put into the trust may be counted against you.

Informal Caregiver Payments

If you’re paying a family member to take care of you, you need to have a formal contract in place. Otherwise, Medicaid may consider those payments as gifts, leading to penalties.

Planning Strategies for the Look-Back Period

One of the best ways to avoid penalties and protect your assets is to plan early. Ideally, you’ll want to start Medicaid planning well before the look-back period begins.

By starting early, you can work with an experienced elder law attorney to ensure your assets are protected and you won’t face penalties when applying for Medicaid.

Documentation is Crucial

It’s essential to keep detailed records of all financial transactions, especially those involving major assets. Proper documentation can help avoid penalties down the line.

Asset Protection Strategies

There are several ways to protect your assets, such as creating an irrevocable trust well in advance of the look-back period or purchasing a Medicaid-compliant annuity.

A Medicaid Asset Protection Trust (MAPT) is a legal tool designed to help individuals preserve their assets while still qualifying for Medicaid to cover long-term care expenses.

Strategic Spend-Down

If you need to reduce your assets to qualify for Medicaid, you can pay off debts, make home modifications, or set up an irrevocable funeral trust.

Professional Guidance

While Medicaid rules are intricate and complex, you don’t have to go through this process alone. Working with an elder law attorney can help you develop a plan that fits your needs and keeps your assets protected.

Take the First Step Toward Medicaid Planning Security In North Carolina

Medicaid planning can be confusing, but with the right approach, you can protect your assets and secure your healthcare needs.

Contact Salines-Mondello Law Firm, PC for a confidential consultation to discuss your Medicaid planning and ensure your future is safe and secure.