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Planning Ahead for the Medicaid Look Back Period

It is always a good idea to start thinking about long-term planning early so that you are financially prepared for the future and your mind can be at ease if future hardship should occur. While estate planning is one endeavor that is best tackled early, long-term health care is another important issue and one that will impact you during your life, as well as impacting your family and beneficiaries.

For those who have yet to think about their future health insurance needs, it is vital to become informed of your options. Medicaid is often easily confused with Medicare, yet the two are very different and can benefit you in different ways. Medicare is a federal insurance program that usually kicks in after the age of 65 (except for in special circumstances). Medicaid, on the other hand, is an assistance program serving low-income individuals of all ages. Medicaid has federal guidelines, but is run by state and local government and to be eligible you have to qualify for your state’s Medicaid program. Medicaid functions largely to cover long-term care once an individual has used up their own assets.

Navigating the Medicaid rule and regulations, to best benefit the person in need, requires an element of foresight and planning. Through proper planning, an individual can qualify for Medicaid while still being supported in part by a spouse or family member. On the other hand, if you do not plan for the possibility, long-term health care may deplete your savings before Medicaid kicks in, leaving you with little to leave to loved ones.  In order to protect some of your assets, gifting money to beneficiaries while you are well can be a way to provide security to your family.

However, one aspect of Medicaid that is often misunderstood is its look back period for asset transfers, which can impact eligibility of individuals who need long-term care. When applying for Medicaid, gifts made within five years are subject to Medicaid penalties; thus these five years make up the “look back period” during which asset transfers will be penalized before Medicaid is granted.

Through advance planning, you may avoid these penalties. While some things in life are impossible to plan for, and a person’s health is one of those unknowns, planning ahead for the future (regardless what is holds) is one way to protect your loved ones and your legacy. After all, if you plan to leave an inheritance to your loved ones, there is no time like the present. Gifting money while you are well serves multiple purposes – avoiding taxes, including the potential of future estate taxes, and safeguarding your estate from Medicaid penalties.

While no one wants to consider the possibility that they will face a long-term illness or injury, planning for this worst-case scenario will lessen the financial and emotional turmoil that such an unfortunate event can cause. With proper planning, you can be at ease knowing that you and your loved ones are financially ready, so that you can focus on your health and not your wealth.

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