What you need to know
Medicaid planning protects seniors from spending their losing their entire life savings and family home on long-term care to nursing home costs.
Take this example: Robert worked the majority of his life at the GM Powertrain plant in Tonawanda, New York to pay for his mortgage, kid’s college, and build a retirement fund. His nest egg grew over the time and he reasonably expected that he and his wife could live off of his retirement during their senior years. Suddenly, Richard suffered a debilitating stroke that paralyzed his body and forced him to live in a nursing home. Now what?
If Robert never considered Medicaid planning, the current arrangement would force him to “spend down” (read: fork over to the government) his entire life savings and sell his house before he would be eligible to receive Medicaid benefits. His wife and children would be left penniless. Scary? Yes. True? Unfortunately. Thankfully, there is a solution called Medicaid planning.
Medicaid is the nation’s primary financial source to pay for long-term medical care. Medicaid pays approximately half of all nursing home bills. Seniors are not eligible for Medicaid financed long-term care until they have “spent down” virtually all of their economic assets. Medicaid planning, thus, is a plan to distribute assets such that they are transferred to their loved ones without having to deplete those assets paying nursing home bills.
What is the Medicaid lookback?
The Medicaid lookback is a five-year period of ineligibility for benefits of those who transferred assets or gifts. If an asset transfer or gift is made within five years of the date of application for Medicaid benefits, the applicant will be subject to a penalty. This penalty is a period of ineligibility is equal to the value of the transferred asset divided by the average cost of long-term care within the applicant’s area.
To illustrate how the look back works, consider the following example. Elaine is 82 years old and anticipates that she will need long term care following heart surgery. Her savings is worth $100,000. Elaine gives her savings to her grandson Michael, and applies for Medicaid benefits four months later. Medicaid. If nursing home care in Elaine’s area costs $5,000 on average, she will be ineligible to receive Medicaid disbursements for ($100,000/$5000) twenty months.
Avoiding the Lookback
Advanced planning allows you to transfer your assets to you loved ones and avoid the Medicaid lookback altogether. Planning early is always the best course of action.