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The Medicaid "look back" period and how it affects planning

As previous posts on this blog have discussed, many middle class residents of Rochester, New York, who have worked hard all of their lives may find themselves in a bind as they approach old age and retirement. They will either have to fork over tens and possibly hundreds of thousands of dollars to pay for medical and nursing home care, or they will have to rely on Medicaid for help once they stop earning income.

The difficulty is that Medicaid is for New Yorkers who have both limited income and assets. A person with a bunch of property saved up, even if it was earned through hard work and even if it is intended as a family legacy, will likely not qualify for Medicaid.

This is why many people in New York, with the help of qualified elder law attorneys, engage in a "Medicaid planning" process, meaning that they start to give away or otherwise divest themselves of assets early on in order to qualify for Medicaid when they need it.

While this is not "wrong" per se, Medicaid does try to discourage people from quickly dumping their property in order to get on to Medicaid by imposing a "look back period." Specifically, the Medicaid "look back' will subject a person trying to get on the Medicaid to penalties for most assets that they give away within 5 years, or 60 months, prior to applying for Medicaid benefits. This is true even if the gift would not be taxable under state or federal gift tax rules.

So, for example, if a person trying to qualify for Medicaid gives away a $10,000 saving bond to a child or other relative and then applies for Medicaid 2 years later, the government may require that person to pay $10,000 toward their medical expenses before Medicaid will kick in, effectively ignoring the fact that the person gave the $10,000 away. Fortunately, gifts outside the look back period are not subject to penalties.

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