Medicaid Planning and the Five-Year Look-Back: How Asset Transfers Are Treated

Many families give money or property to children years before care is needed. A house deed moves. A savings gift helps a grandchild. Those gifts feel safe at the time. If a parent later applies for Medicaid to pay for nursing home care, the state looks back at those moves. Gifts made in the five years before the application can delay the start of Medicaid payment. This guide explains the look-back, the penalty that can follow, and the checks to run before any gift is made. Our Paying for Care section holds more guides on Medicaid and care costs.

What the state reviews

The look-back covers the 60 months, five full years, before the date the person applies for Medicaid long-term care. The state asks about moves by the applicant and by the applicant's spouse. Bank records, deeds, and sale papers for those years are the proof the state works from.

The question on each move is the same. Did the person get fair market value in return? Fair market value means the price the asset would fetch in an open sale. A sale at full price is not a flagged transfer. A gift, or a sale far below that price, is.

Common moves that draw a penalty are cash gifts to family, a home signed over for no pay, and a car or land sold to a relative for far less than its worth. Paying a fair wage for real care work, under a clear written agreement, is pay for services, not a gift, as long as the rate fits the market rate for that work.

Our guide on the Medicaid spend-down explains how people lawfully use funds on care and needs to reach the resource standard.

How the penalty works

If the state finds a transfer for less than fair value in the window, it sets a penalty period. The state adds up the value given away and works out a span of months from its own average cost figures. In that span, Medicaid does not pay for the long-term care, even though the person now meets the income and resource tests. The family pays for care in those months, or care waits.

The start date traps many families. The penalty does not start on the day of the gift. For gifts made on or after February 8, 2006, it starts on the later of two dates: the gift date, or the date the person is in a nursing home and would qualify for Medicaid payment if the penalty did not stand. A gift made three years ago can thus start its penalty now, at the point of need.

A gift made more than 60 months before the application sits outside the window. The state does not count it in this review. That fact is why timing, years ahead, shapes so many plans.

Moves that do not draw a penalty

Federal law spares some transfers. Moves between spouses do not draw a penalty, since assets of a couple are counted as a shared pool in any case. Our guide on the community spouse rules covers how a spouse at home keeps income and savings.

Full-value deals are also safe. If you sell an asset, keep proof of its worth and of the price paid. A sale with no paper trail can look like a gift. Hardship relief is a last path: a state can waive the penalty when it would risk the person's health or life, or strip food, clothing, or shelter. A nursing home can ask for that waiver for a resident, with the resident's consent.

Who pays for what

• Medicaid pays for long-term care for a person who meets the state tests and has no penalty in force. The resource standard is $2,000 for one person (Ledger D3).
• Medicare pays for short skilled care after a hospital stay under its own rules. It does not pay for long custodial nursing home care.
• The state pays nothing toward care in a penalty period. That gap falls to the person and the family.
• Private pay covers care before Medicaid starts, care in a penalty span, and each cost no program covers.
• A spouse at home keeps set income and savings under the spousal rules, as the linked spouse guide sets out. The applicant's own resource standard stays $2,000 (Ledger D3).

Sample situation

Henry gave his daughter a cash gift four years ago to help her buy a home. He now needs nursing home care and applies for Medicaid. The gift sits inside the 60-month look-back, so the state counts it as a transfer for less than fair value. Henry has spent his other funds down to the $2,000 resource standard (Ledger D3), so he meets that test. The state still sets a penalty period for the gift. In that span, Medicaid does not pay, and the family must cover the care cost or find other care until the span ends.

Steps before you give or sell anything

• List each gift or below-value sale from the past five years, with dates and amounts. Bring that list to any planning talk.
• Keep proof of full value for each sale: a valuation, a bill of sale, and bank records of the price paid.
• Do not sign over a home or make a large gift to qualify for Medicaid without advice on the look-back first. A local elder law attorney or your state Medicaid office can state how your state treats the move.
• If a gift in the window already exists, tell the state the full facts at application. Hidden transfers found later can bring worse results than declared ones.
• Ask about hardship relief if a penalty would leave a person with no care and no funds.
• Plan years ahead when you can. Moves made more than 60 months before an application sit outside this review.

Sources

• https://www.cms.hhs.gov/DeficitReductionAct/Downloads/TOAbackgrounder.pdf