The Medicaid five-year look-back period is the timeframe in which Medicaid will look back to see when improper asset transfers were made. The look-back period nationwide for Medicaid is five years (60 months). Once a Medicaid application is submitted here in Florida, Medicaid will look back at the five previous years to see if any improper transfers were made.
If the Medicaid applicant made improper transfers, then the Medicaid applicant will be denied Medicaid benefits. Medicaid will then impose a penalty period where the Medicaid applicant will not be eligible for Medicaid benefits for a specific period based on how much money was improperly transferred. The Medicaid applicant must then wait until the penalty period expires to begin receiving Medicaid benefits.
Example: Joe is in a Florida nursing home and needs to qualify for Medicaid so that he doesn’t have to pay the $12,000 monthly for the nursing home. Joe applies for Medicaid on January 1, 2024. In January of 2022, exactly two years before he applied for Medicaid, Joe gifted his children $15,000 each since this was the amount he could transfer according to the IRS gifting rules.
Result: Even though Joe gifted $15,000, which was within the IRS-allowed gifting limits, gifting is not allowed for Medicaid purposes. Joe will be denied Medicaid due to the $30,000 he improperly gifted to his children.
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How Medicaid Finds Improper Asset Transfers
Medicaid will look at several sources to determine whether a transfer occurred within the previous five years. Some of these sources include:
- Unidentified withdrawals from bank accounts;
- Tax assessor online pages showing the change in ownership of the property;
- Quit-claim deed to the property with recent signature date;
- Unidentified deposits on financial statements;
- Date exchange responses for sources not on record;
- Purchase of annuities;
- Promissory notes and mortgages received in exchange for cash or property;
- Formal and informal loans made to others; and
- Funds placed in a trust.
The presumption is that when a transfer occurs within the five-year lookback period, the transfer is to become Medicaid-eligible. This means that Medicaid will penalize you for such a transfer. The exception to the presumption would be for when a transfer is made for fair compensation. If the transfer was made for fair compensation, then the transfer will not interfere with the Medicaid lookback period.
Example: Joe is in a nursing home and applying for Medicaid. He sold one of his rental properties three years before applying for Medicaid and received fair market value for the sale.
The sale of the home will not be considered an uncompensated transfer that will automatically result in a penalty period for Medicaid.
Note: Medicaid will look to see where the money from the sale went. If the money was spent down or transferred legally through a Medicaid planning technique, then the money will not result in a penalty period.
Even though the presumption is that the transfer was made to become Medicaid-eligible, an individual can rebut the presumption if you can demonstrate one of the following:
- The asset was transferred solely for reasons other than to become Medicaid-eligible;
- The individual intended to dispose of the assets either at fair market value or in exchange for other valuable compensation;
- The assets transferred were allowed under the Florida Medicaid rules;
- All transferred assets were returned to the individual; or
- Imposition of a period of ineligibility would place undue hardship on the individual.
The following sections will cover the easiest ways to fix improper Medicaid asset transfers so that improperly transferred assets are not lost to the nursing home.
Fixing an Improper Medicaid Asset Transfer
The easiest way to fix an improper transfer for Medicaid is to undo the transfer. You can undo the transfer by returning the assets to the Medicaid applicant. Once the assets are returned to the Medicaid applicant, the improper Medicaid asset transfer penalty period is eliminated. When the asset is returned, the Medicaid applicant is treated like they never made the transfer. You can then do a proper Medicaid asset transfer to protect the asset legally from the nursing home.
Example: Rose is in a Florida nursing home and needs Medicaid to pay for the $12,000 per month the facility costs. She mistakenly transferred $30,000 to her two grandchildren last year, thinking these gifts wouldn’t affect her eligibility for Medicaid since they are allowable under the IRS rules. Rose was then denied Medicaid benefits due to her improper transfer of $30,000. Rose’s family hires a competent elder law attorney to help fix the improper transfer. The elder law attorney recommends transferring the gifted money back to Rose and then transferring the money legally under a personal services contract.
Result: Rose will be eligible for Medicaid since the improper transfer of $30,000 was fixed by transferring the money back to Rose. Even though the $30,000 going back to Rose also makes her ineligible for Medicaid, her elder law attorney drafted a personal services contract allowing the legal transfer of the $30,000 to Rose’s family.
Transfers That Don’t Interfere With the Medicaid Five-Year Lookback Period
Once the improper transfer is fixed by returning the asset to the Medicaid applicant, you can take advantage of many generous ways of protecting assets from Medicaid here in Florida. Here are some of the common ways of protecting assets from Medicaid here in Florida that do not cause any issues with the five-year lookback period:
- Personal Services Contract. The personal services contract is a Medicaid planning technique that allows a Medicaid applicant to transfer significant assets to a caregiver. It is an exchange of money for services based on the Medicaid applicant’s life expectancy. The exchange of money for fair market value services makes it a legal transfer of assets under the Florida Medicaid rules.
The caregiver is typically a trusted family member or friend who is local and is already performing caregiver duties, such as visiting the Medicaid applicant, paying bills, buying groceries, taking care of animals, etc. Our office uses a personal services contract in every Medicaid planning case.
Example: Delores is applying for Medicaid, but she is unmarried. She has $100,000 in her bank account, preventing her from applying for Medicaid. Delores’ sister has been helping her sister for years with household chores, paying the bills, taking care of Delores’ animals, and visiting her. Delores meets with an elder law attorney who drafts a personal services contract to transfer the $100,000 to Delores’ sister.
Result: The personal services contract legally allows Delores to transfer the $100,000 to her sister. The transfer does not interfere with the five-year lookback period since it exchanges money for services.
- Purchasing rental property. A common Medicaid planning technique here in Florida is to purchase rental properties to protect assets from the nursing home. Rental properties that generate fair market value rent are excluded for Medicaid qualification purposes.
Example: Doug is in a nursing home and needs to apply for Medicaid. He has $200,000 in unprotected assets that would disqualify him from qualifying for Medicaid. His children have already utilized the personal services contract planning technique, and Doug owns a homestead that is excluded from the nursing home. Doug’s elder law attorney recommends that he purchase a rental property, so the children use Doug’s power of attorney to buy a small condo on his behalf and rent it out.
Result: Doug’s $200,000 that was unprotected from the nursing home will now be completely protected from the nursing home since it was used to purchase a rental property that generates fair market value rent.
- Community Spouse Resource Allowance (CSRA). Assets can be transferred to a spouse at any point in time without incurring penalties. The community spouse resource allowance is a fancy way of saying that the spouse not needing to qualify for Medicaid can keep a certain amount of assets in their name alone to help sustain themselves.
The current CSRA amount for 2024 is $154,140, which is adjusted each year. This means the spouse not applying for Medicaid can keep $154,140 of assets that would normally disqualify the spouse trying to apply for Medicaid. The spouse who can keep the $154,140 must ensure that the money is in their name alone. The spouse applying for Medicaid cannot be a co-owner of the account(s).
- Investing Money Into the Homestead. One of the easiest ways to protect assets is to purchase a homestead. A homestead property in Florida is excluded up to $713,000 (2024). The homestead is also excluded for an unlimited value if you’re married. This means that if you own a homestead for less than $713,000 (2024) and have unprotected assets, you can purchase a more expensive homestead to protect the assets.
Example: George owns a homestead property worth $300,000. He’s applying for Florida Medicaid since he is in a nursing home. He has $250,000 in a money market account that would have to be spent down for him to qualify for Medicaid.
Result: George can sell his homestead and buy one worth $550,000. The new $550,000 homestead will completely protect the $250,000 he had that previously made him ineligible for Medicaid.
- Purchasing Goods or Services for Fair Market Value. Purchasing goods or services for fair market value is also a way to protect assets from Medicaid. Let’s say you need to buy a new roof for your home or rental property, and you have $20,000, which will make you ineligible for the nursing home. You can take the $20,000 and purchase a new roof. The $20,000 for the new roof will not interfere with the Medicaid lookback period because purchasing the new roof for the $20,000 is an exchange of money for goods.
Caution: The purchase must be for fair market value. So, if you need to purchase a new roof and a typical new roof only costs $20,000, and you only pay $5,000, then there’s a chance that Medicaid will look into this transaction.
How the Florida Medicaid Penalty Period Works
If you make an improper transfer of assets for Medicaid that interferes with the five-year lookback period and you cannot fix the transfer, then Medicaid will apply a penalty period where the Medicaid applicant will not be eligible for Medicaid. The penalty period is calculated by adding all improper transfers for the prior sixty months from when the Medicaid application was submitted.
The total value of the improper transfers is divided by the penalty period divisor. The penalty period divisor is determined by the average monthly private pay nursing home rate, which is published by the Florida Department of Children and Families each year via their program policy manual.
The penalty period divisor for 2024 is $10,438. You then divide the amount that was improperly transferred (total uncompensated transfers) by the penalty divisor. This will give you the penalty period calculation in the total number of months for which a Medicaid applicant or recipient cannot receive benefits.
Example: Joseph is in skilled nursing rehab and is applying for Medicaid to pay for the nursing home long-term. Joseph improperly transferred his homestead to his son two years before he applied for Medicaid. Joseph’s homestead was worth $200,000.
Result: Joseph will be penalized from receiving Florida Medicaid benefits for 19.16 months ($200,000 / $10,438 = 19.16).
Does the Medicaid Five-Year Lookback Period Apply to Gifts
Many people believe that since the IRS allows tax-free gifts to be made each ($19,000 per recipient in 2025), Medicaid will also allow gifts within the IRS tax-free limits. Unfortunately, Medicaid does not allow gifting like the IRS does. We always advise clients not to make gifts since gifting is an easy way for Medicaid to impose a penalty period.
If you do make a gift and Medicaid discovers the gift, Medicaid presumes that the gift was made to qualify for Medicaid. The Medicaid applicant will then need to overcome the presumption that the gift was an improper transfer by showing that the intent of the transfer was to make a gift.
Example: Donna must apply for Florida Medicaid within the following year. Her grandson just graduated from college, and Donna wants to make a nice gift for the grandson. Donna purchased a nice watch for her grandson for $1,000.
Result: The gift will likely be allowed by Florida Medicaid since Donna only intended to make a gift for her grandson’s graduation. However, we do not think making the gift is worth the hassle of potentially being penalized by Florida Medicaid.