The Medicaid Five-Year Look-Back Asset Transfer Rules: Avoiding Costly Errors in Long-Term Care Planning

For many people, Medicaid (a joint federal and state program) is their only available source for long-term nursing home care.  For those who can afford it, New York State provides a partnership for long-term care with some participating insurers.  Under this program, the insured person can apply for New York State Medicaid Extended Coverage that allows for either partial or total asset protection from the mandated federal estate recovery provisions described below. Even under this program, income is a factor in determining eligibility.

In 1993 Congress passed legislation requiring States to implement a mandatory estate recovery program for Medicaid recipients over the age of 55.  Three years later, Congress mandated that States set up agencies for the recovery of funds spent on long-term care from people who did not meet eligibility requirements.   Then in 2006 the Deficit Reduction Act (DRA 2005) inaugurated changes in the ineligibility period (or penalty period) to the Medicaid asset transfer rules.  Lawmakers were concerned that some Medicaid participants were meeting their eligibility by shifting assets to their children that would otherwise be used to cover the cost of their care.

To be eligible for long-term care in Medicaid nursing homes or for a community waiver, the person requiring the care must be receiving Social Security and his/her income and assets cannot exceed the income and asset guidelines (note that this chart has not changed for 2011).   DRA 2005 mandates a 60-month look-back period for any evidence of asset transfers, a significant increase from the prior three-year look back period.  If any evidence is found, then the clock for the look-back period will begin at the time of the application for services rather than the date of the asset transfer, a rather stiff penalty.

When contemplating a transfer of assets for the purpose of Medicaid long-term care eligibility, it is important to remember that any asset over which the individual retains control may be used to reimburse Medicaid for nursing home expenses.  And sometimes the best intentions of an individual can be defeated by a residual ownership interest.

Matter of Padulo v Reed presents such a scenario.  Between 1976 and 1994, Ada J. Romeo purchased U.S. savings bonds, naming herself and either her daughter Juliet Padulo or one of Juliet's children as the bond owners.  On 15 December 2001, Ada gave all her her bonds to Juliet, and Juliet distributed the bonds among herself and her children. 

In 2004 Ada moved to a nursing home.  In the months between July 2004 and February 2005, Juliet cashed out all of the bonds, including those that she had given to her children.   Juliet took the money and put it into a joint account that she held with her husband and her mother.  She used part of the money derived from the sale of the bonds to pay for Ada's nursing home care.  In September of 2005, Juliet applied for Medicaid benefits on behalf of her mother, thinking that she had met the then three-year look-back period under pre-DRA 2005 rules.  The New York State Department of Health denied the application.

The Appellate Division, Fourth Department agreed with the Department of Health.   Because the proceeds from the sale of the bonds were placed in a joint account with Ada, there was a presumption that Ada had full control over the funds and thus that the money belonged to her.  Joint bank accounts also have a right of survivorship, so it would have been possible for Ada to become the sole owner of the account had her daughter and son-in-law predeceased her.   Thus Ada's transfers to her daughter and grandchildren failed to satisfy the look-back period for Medicaid because she still maintained control over the money.  After Ada's death, her estate became subject to the federal estate recovery provisions for the cost of her nursing home care.

If you would like to discuss your own personal situation with me, review your current Will, or put together an estate plan that is tailored for your needs, you can get a free 30-minute consultation simply by filling out this contact form. I will get back to you promptly.

I invite you to join my list of subscribers to this blog by clicking on "Subscribe to" on the left-hand side of the page so that you can receive a notification when the next installment has been published.  Thank you.