Medicaid provides invaluable assistance for nursing home care. Dealing with the 5-year look-back rule is an important part of Medicaid planning and preserving assets for family members. Most asset transfers that are made within five years start a penalty period that disqualifies that person from coverage. This rule is intended to prevent an applicant from giving away their assets or selling them at discount prices to fall within Medicaid’s asset limit. In New York, this rule applies only to nursing home coverage.

The penalty is calculated by dividing the value of the asset transfer by Medicaid’s nursing home average cost for a specific time such as a day or month. The look-back period begins on the date of the Medicaid application. There are many examples of disqualifying asset transfers. These include money given to a grandchild for their graduation, a house transferred to a relative or a car donated to a charity. Violations even include payments to a personal care assistant without a formal agreement or assets that were transferred as gifts, transferred or sold below their fair market value.

There are some valid exceptions to this rule allowing asset transfer. To avoid impoverishment, a portion of a married couple’s jointly owned assets may be allocated to the non-applicant spouse under amounts set forth under a Community Spouse Resource Allowance. Transfer may be made to an applicant’s children under 21 who are legally blind or have a disability. This includes the establishment of a trust.

A home may be transferred to a sibling if that sibling has ownership in it and lived there for at least one year before the Medicaid applicant’s relocation to a nursing home. A child caregiver exemption also allows the transfer of the home to an adult child who was the aging parent’s primary caregiver and lived in the home for at least two years before the parent entered a nursing home.

An applicant may spend down excess assets without violating this rule if specific requirements are met. This includes spending for life-care, caregiver or elder care agreements. Other exemptions include spending on Medicaid annuities. Paying off mortgage or credit card or similar debt and for home modifications and repairs is also permitted, These rules may be complicated, and an applicant may unintentionally violate them. An attorney can help applicants preserve eligibility and legally protect assets.