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When you apply for nursing home benefits, Medicaid will evaluate your financial data going back five years. This is called the look back period. If there has been any transfer of money or assets to someone other than your spouse (or minor, blind, or disabled child) within the look back period, Medicaid will impose a penalty period during which you will not be eligible to receive Medicaid benefits.

Medicaid calculates the length of the penalty period by taking the total amount of the transfers made during the five year period, and dividing this amount by the regional rate applicable to your geographic area. This amount determines the number of months that you will not be eligible to have Medicaid pay your nursing home bill.

For example, if you gave your child a gift of $200,000 within the five year look back period, and you entered a New York City nursing home in 2020, Medicaid would divide $200,000 by the regional rate of $12,844, resulting in a penalty period of close to 16 months. The penalty period starts as soon as you enter the nursing home, apply for Medicaid, and are otherwise eligible for Medicaid but for your transfer of assets. During the penalty period, the nursing home’s bills will have to be covered on a private pay basis.

Using the above example, if the nursing home’s private pay rate is $16,000 per month (many facilities currently cost this much or more), the Medicaid penalty would cost about $256,000 – or $56,000 more than you gave away. If you enter the nursing home prior to the time the penalty period actually begins, it could cost you an even greater amount.

A financial disaster like this can be avoided with good planning, yet most people don’t do it. Don’t make that mistake yourself. If you transfer cash and assets out of your name during the look back period, it will be too late to save 100% of your assets. However, in many cases, with good Elder Law planning, you will still be able to save 40% to 50% of your assets.

Contact Lamson & Cutner today to start your planning now and potentially avoid problems in the future.

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