Helpful Information
Look Out: "Look Back" Period for Medicaid Coverage Extended
By Alex L. Moschella, Esq., Neal A. Winston, Esq., Kara O'Brien Holland, Esq., Lauren Keane, Esq.
The enormous challenge of paying for long-term care has led many elderly individuals to resort to intentionally "impoverishing" themselves in order to qualify for Medicaid coverage (known as MassHealth in Massachusetts). The individual "spends down" his or her assets, or transfers them to family members or others in order to appear to be insolvent, and thus be in line to receive financial assistance for nursing home care or at-home long-term care services.
Naturally, federal and state officials frowned upon this practice and put restrictions in place to curb it. In 2006, the rules that govern the transfer of assets were significantly tightened. The "look back" period during which asset transfers would be scrutinized was extended from three to five years. This puts an additional burden on individuals and families, particularly those in the middle income bracket, to properly plan and prepare for potential long-term care needs.
What Disqualifies a Transfer?
There is a long list of asset transfers that the State Office of Medicaid considers disqualifying. These include the transfer by the nursing facility resident or spouse of a resource, or interest in a resource, owned by or available to the nursing facility resident or the spouse for less than fair-market value unless it meets certain requirements. This includes the home or former home of the nursing facility resident or the spouse.
Medicaid may also consider as a disqualifying transfer any action taken to avoid receiving a resource (gift of cash, transfer of bank account, home, etc.) to which the nursing facility resident or spouse is entitled. A disqualifying transfer may also include any action taken which would result in making a formerly available asset no longer available.
The most important of the new rules involves transfers made within the 60 month period (formerly 36 months for an individual and 60 months for a trust) prior to applying for Medicaid. This is called the "look-back period." The purpose of the look-back period is to review financial records and, if necessary, penalize the applicant or spouse for gifts or sales (for less than fair market value) made prior to applying for Medicaid, when it is arguably foreseeable that coverage will be needed. A disqualifying transfer will be deemed to exist if the applicant transfers a countable asset or principal place of residence for less than fair market value during this look-back period.
Penalty Period May Be Extended As Well.
There is a formula for calculating the period of ineligibility for Medicaid once a disqualifying transfer is identified. The state takes the fair market value of the transfer in question (asset value or cash amount) and divides it by the average daily cost of nursing home care in Massachusetts. (The average daily nursing home cost in Massachusetts was $246 per day as of February 1, 2006.)
For example, under the old law, if $400,000 had been transferred to children, the tentative penalty period, during which the individual would be ineligible to receive Medicaid coverage, would be approximately fifty-four months. But, because the look-back period was only three years, the penalty period would effectively end in 36 months. Essentially, the disqualification period could be capped at 36 months, regardless of the size of the gift. Under the new regulations the look-back is extended to 60 months, thus the penalty period can also run as long as five years.
The new five year look-back rule only applies to transfer made after the enactment of the law (February 6, 2006). So its full effect won't be felt until February 8, 2009. For the time being, three years of documentation should be sufficient to provide proof of relevant transfers.
A second important rule added by the new law, and the change that has the most devastating effect upon elders and their families, requires that if the gift occurs within five years of the date that coverage is needed for nursing home care, the disqualification period will not start until the individual actually gifts away the excess assets, is receiving nursing home care, files a Medicaid application for long-term care, and is denied eligibility solely due to the transfer. The penalty clock does not start ticking until this entire process is complete. The ineligibility period for large transfers can be considerable if the gifting is made less than five years prior to the need for nursing home care.
If an applicant, however, delays his or her application for Medicaid for more than 60 months after making a disqualifying transfer, it is not necessary to report the transfer to Medicaid. In this manner, applicants can essentially cap their ineligibility at a maximum of 60 months. There are various asset protection planning measures that an elder law attorney can utilize to save a portion of an elder's assets, and an experience elder law attorney should be consulted on these complex issues.
Applying for Medicaid at the wrong time after a large transfer can cause a much longer than necessary disqualification period. Under the new law, transfers directly into a trust now have the same five year look-back period as transfers to individuals.
The law does allow for correction of a disqualifying transfer to help shorten the period of ineligibility. After the issuance of the notice of the period of ineligibility, the nursing facility resident may avoid imposition of the period of ineligibility by "curing" the transfer, or essentially getting the money or assets back and spending it on their nursing home care. Once again, this complex area requires you first to consult with an experienced elder law attorney.
A long standing regulation states that Medicaid will not penalize an individual for transfers made for less than fair market value if they were transferred for a purpose other than to qualify for MassHealth. However, this regulation has not been interpreted favorably, and most penalties have remained in effect. With the new Medicaid laws, elder law attorneys will need to attempt to change the Medicaid mind set towards such transfers.
What About Tax-Free Gifts and Estate Taxes?
Much confusion exists as to tax-free gifts and estate taxes that are beyond the scope of this article. The important fact to remember is that an individual who dies this year has an unlimited federal estate tax exemption of $2 million until 2009, when it is increased to $3.5 million. (Congress now faces the decision to roll back the exemption to one million dollars at that time.) The exemption for Massachusetts estate taxes is $1 million.
Further, there is also confusion about "tax-free" gifts. A change in federal law allows each person to now make a tax-free gift of $11,000 (with small cost of living increase each year) each to appropriate individuals every year. A married couple can make joint gifts of up to $22,000 to each individual every year. Each gift is applied as a "credit" on the estate tax exemptions discussed above. If a person or couple is not concerned about estate taxes, then gifts in excess of $11,000 per person may be given with no adverse consequences to the donor or recipient, up to the lifetime exemption amount. A qualified accountant can advise you as to whether a gift tax return should be filed and can provide you with filing instructions.
Summary
Given the complex nature of the Medicaid eligibility laws, there is no replacement for the personal advice of an elder law attorney. Each individual's situation varies significantly in facts and figures, and specific advice is the best method of ensuring that your concerns and problems are addressed properly.
Disclaimer: While the information contained in this article is intended to be accurate, it is nonetheless presented with the understanding that it does not constitute legal advice or professional assistance in any manner. Independent legal advice by an attorney must always be undertaken before recommending any action or inaction based on this article. Alex L. Moschella, Esq., Neal A. Winston, Esq., Kara O'Brien Holland, Esq., and Lauren M. Keane, Esq. are elder law attorneys at Moschella & Winston, LLP 440 Broadway, Somerville, MA 02145 (617) 776-3300 www.moschellawinston.com.