As you plan for your future, you probably wonder whether you will qualify for Medicaid. Unlike Medicare, to which anyone who has paid income taxes is entitled, Medicaid is based on financial need. If your income is too high or your assets too great, then you will not qualify for Medicaid.
Many people decide to spend down or transfer their assets so that they can qualify for Medicaid benefits. However, if you do this within five years of applying for Medicaid, your assets may be subject to penalties and you may experience delayed eligibility. This is called the five-year look-back period or the five-year look-back rule.
How the five-year rule works
For the year 2020, an individual who has an estate worth $200,000 or more will not qualify for Medicaid. With this much money to your name, the government will expect you to pay for your own care. However, if you put your assets into an irrevocable trust or make gifts to other people, then these assets will not count toward your estate.
To prevent people from deliberately paying down their assets, the government created the five-year look-back rule. Under this rule, the government can examine your financial transactions for the 60 months prior to your Medicaid application. If it finds major transfers, then it will impose a penalty. You may also have to wait longer to receive Medicaid benefits.
Long-term planning is key to avoid penalties
If you plan to transfer some of your assets, perhaps by using an irrevocable trust, then you must do so at least five years before you apply for Medicaid. The sooner you start planning your long-term care and its impact on your finances, the better. Long-term care planning will give you a better idea of what to expect in the future and how to plan for it. There is not way to predict with any certainty what the future holds, but by taking the initiative to plan today, you can have more control of your tomorrows.