MEDICAID – WHAT DOES THE 5-YEAR RULE REALLY MEAN?
My name is Ken Kraus. I am one of the attorneys at Evans Fox. This is the second video in our new monthly series of varied topics. Today we will address the five-year rule in Medicaid planning.
What most people don’t know about the 5-year rule for gifts and how it affects your Medicaid eligibility, is that while it sounds simple, it is complex.
A lot of us have heard that such a rule exists – that Medicaid does not need information about every gift ever made. It only needs information about gifts made within the “look back period”, which is 5-years.
But what is a gift? Do all gifts cause problems?
As a reminder, Medicaid can, if you’re eligible, help pay for the costs of health care both if you are in the community or in a long-term care facility.
To be eligible, you must pass “three tests”: assets, income, and gifting. Even if you pass the asset and income tests (subjects for another video), you may still be ineligible for Medicaid if you do not pass the gifting test.
Medicaid will impose a “penalty period” (or a period of ineligibility) if certain kinds of gifts were made within the 5-year period prior to applying for benefits.
The penalty period is determined by a calculation, that equals roughly one month of ineligibility for every $13,000 of gifts made.
And there is the problem – if ineligible, it may cost you about $18,000 to privately pay for care for one month.
Planning for the 5-year rule, and ensuring you have sufficient funds available, can help make sure you are able to receive what I call “the right care, at the right place.”
A common misunderstanding is to mix-up the tax rule that says you can gift a certain amount every year without consequence. The tax rule is irrelevant for this purpose. What may be ok under the tax rules is likely not ok under the Medicaid rules.
Medicaid has complex rules defining what is a gift. Another common misunderstanding is that all gifts cause problems, but they do not. Many gifts can be “rebutted”, that is, determined not to cause a penalty period. Even if you did make a gift within 5 years of going into a nursing home or needing Medicaid, there are strategies that we can discuss to help reduce the penalty period.
It is important to remember the basic rule – that gifts made within 5 years may cause a problem. But as always, it’s the nuance that really matters, how is it applied, is it a gift, will it cause a problem?