Penalties, lookbacks and gifts for Medicaid

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Q. Does the Medicaid five-year lookback period translate into a discrete time period based on the amount of money gifted during that five-year time? If a person gifted to others a sum of $60,000 in several gifts since late 2016, is that divided by $12,895 to give a “penalty period” of 4.65 months? Or is the penalty period through 2021, five years from 2016? And what about an irrevocable trust set up by a third-party decades ago? Would that have to be accessed and spent down?
— Working it out

A. Let’s give you some clarity by going over the difference between Medicaid’s lookback and penalty periods.

When someone gives a gift within the five-year period before applying for Medicaid, those gifts are added together and will result in a disqualification, said Geraldine Callahan of Callahan Financial Services in East Hanover.

She said the Medicaid applicant will face a period of benefit ineligibility, known as the penalty period.

“The penalty is calculated based on the total amount that was transferred or given away and divided by the penalty divisor within the state,” she said. “The penalty divisor is the average monthly cost of long-term care in the applicant’s state.”

New Jersey’s penalty divisor for 2018 is $423.95 per day or $12,718.50 per month, Callahan said.

Let’s use your example of gifting a total of $60,000.

“The applicant would be disqualified for approximately 4.7 months,” Callahan said.

She said the penalty period starts to run when someone applies for Medicaid. Using the five-year lookback, the applicant could wait to apply for Medicaid in 2021 as you suggested and the gifts would not be counted, Callahan said.

Regarding your irrevocable trust question, Callahan recommends you speak to an elder law attorney for specifics regarding that trust, noting the attorney will need to know the type of trust, when it was set up, how it was funded and the specific rules outlined in the trust to determine if it is exempt from Medicaid spend down.

Callahan said the bottom line is that once the five years have passed following a particular gift, that gift will no longer count when the person who made the gift applies for Medicaid.

“It is important to note that not all gifts cause the imposition of a penalty,” she said. “Gifts between spouses, gifts to disabled children, and gifts to children who have lived with and cared for the Medicaid applicant for a minimum of two years are not subject to the Medicaid gift rule.”

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This post was first published in January 2018. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.