What is the Five-Year Rule in Medicaid Trusts?

Many of the long-term care facilities in Pinellas County are Medicaid nursing homes. These quality facilities are basically free, as long as the resident qualifies for Medicaid. But many people do not meet the government’s strict Medicaid eligibility income and asset limits. These limits change every year, but in general terms, applicants must have practically no income and own practically no assets.

IAPTs (Irrevocable Asset Protection Trusts) address this issue. If the trust meets certain requirements, people can live in Medicaid nursing homes without liquidating their assets. However, these rules are very complex. The do-it-yourself trusts available on the internet may not satisfy all these complex requirements. Additionally, no DIY document gives people legal advice. Only a St. Petersburg estate planning lawyer checks both these boxes (drafting a solid trust and giving legal advice).

The Five-Year Rule

The five-year lookback period may be the most important requirement of a Medicaid trust in Florida.

When a senior applies for long-term care Medicaid, whether that be services in one’s home, an assisted living residence, or a nursing home, there is an asset (resource) limit. To be eligible for Medicaid, one cannot have assets greater than the limit. Medicaid’s lookback period discourages Medicaid applicants from gifting assets, including selling them under fair market value, to meet Medicaid’s asset limit.

All asset transfers within the lookback period are reviewed by the Medicaid agency. This includes transfers made by an applicant’s spouse. If the lookback period has been violated, a Penalty Period of Medicaid ineligibility will be established. This is because had the assets not been outright gifted or sold under their fair market value, they could have been used to pay for the elderly individual’s long-term care.

The lookback period begins the date of one’s Medicaid application for long-term care. Generally speaking, the “look back” is sixty months (five years). All financial transactions between these dates are subject to review and are presumptively fraudulent.

Examples of transactions that violate the lookback period and could result in penalization include the following:

• Money gifted to a granddaughter for her high school graduation,
• A house transferred to a nephew, collectors’ coins sold for half their value,
• Vehicle donated to a local charity, and
• Payments made to a personal care assistant without a formal Personal Care Agreement.

Even after the “initial” lookback period, if Medicaid beneficiaries have financial windfalls and give all (or some) of the money away, they are in violation of the look-back rule.

Medicaid Alternatives

If a person misses the five-year window, a St. Petersburg estate planning lawyer can still help families qualify for Medicaid assisted living care.

For example, people with limited assets may be eligible for Medicaid spend-down planning. Assume Sally, who rents a house, has a stroke and needs long-term care in a nursing home. Her car has an outstanding $5,000 loan and she has $10,000 in the bank (i.e. she only has $10,000 in countable assets).

In this situation, her family can legally spend down Sally’s assets by paying off her car loan of $5,000 and purchasing a $3,000 prepaid, irrevocable funeral policy.  After that, Sally only has $2,000 in countable assets, meaning that she is eligible for long-term care Medicaid. The financial cutoffs change almost every year.

Additionally, Florida law forbids home foreclosures on inherited homes. Some restrictions and limitations apply.

Contact a Thorough Pinellas County Lawyer

Will and estate matters are very complex. For a confidential consultation with an experienced estate planning lawyer in St. Petersburg, contact Drude Tomori Law. Convenient payment plans are available.