Medicaid look-back explained

Understanding the Five-Year Look-Back Period for Medicaid in New Jersey and 7 Proven Strategies for Planning

When applying for Medicaid, the look-back period is often the most complex part of the process.  There are plenty of misconceptions and a great deal of confusion about Medicaid’s five-year look-back period, especially when it comes to long-term care in New Jersey.

This article aims to explain this complex topic to those who are navigating these waters either for themselves or their loved ones. We must caution though that Medicaid planning is not a do-it-yourself process.

What Is The Five-Year Look-Back Period?

The five-year look-back period is an important concept in Medicaid planning. It refers to the period of time that Medicaid reviews when an individual applies for assistance with long-term institutional care or home and community-based services. In New Jersey, this period is five years (or 60 months) prior to the date of the Medicaid application.

Why Does It Matter?

The primary purpose of this look-back is to ensure that applicants have not transferred assets below market value to qualify for Medicaid. If such transfers are found, they can lead to a penalty period, during which the individual is ineligible for Medicaid benefits and must pay for care out of their own pocket until the penalty period is over. These payments can be very significant.

Costs Of Care

Understanding the costs of institutional or home-based care is essential when considering Medicaid planning:

Institutional Care: This typically includes nursing home care. In New Jersey, the cost can be significant, often exceeding $10,000 per month.

Home And Community-Based Services: These services are intended to help individuals stay in their homes. While generally more affordable than institutional care, they can still be substantial.

What Assets Count?

Exempt And Non-Countable Assets

Not all assets are considered in determining Medicaid eligibility. In New Jersey, certain assets are exempt or non-countable. Below are a few assets which are considered “non-countable.”

Primary Residence: Up to a certain equity limit (New Jersey is $1,033,000), if the applicant intends to return or if a spouse or dependent relative lives there.

One Vehicle: Used for transportation of the applicant or a family member.

Personal Belongings And Household Effects: These are typically exempt.

Prepaid Funeral And Burial Expenses: If certain conditions are met.

Certain Types Of Trusts: Depending on their structure and terms.

Countable Asset Limits

When applying for Medicaid, the applicant’s countable assets must be below a certain threshold. As of the time of writing, an individual applicant in New Jersey is allowed to have $2,000 in countable assets. It’s important to note that these figures can change and vary depending on specific circumstances, such as if the applicant is married.

Strategies Used To Qualify

Elder law attorneys use various strategies to help clients qualify for Medicaid while preserving as much of their clients’ assets as possible. While we will give some examples of some common strategies used in Medicaid planning, it is important to consult with a qualified attorney.

Spending Down Assets

This involves reducing the countable assets to meet Medicaid’s eligibility threshold. It’s done by spending the assets on non-countable items or services.

For example, spend down strategies include paying off debt, home improvements, buying a car, paying for medical expenses, prepaying funeral expenses, and purchasing household goods or personal items.

Asset Conversion

Assets conversion involves converting countable assets into exempt assets. This strategy is often used in tandem with the spending down approach.

Often conversion is done by using cash (a countable asset) to pay off a mortgage or to make home modifications. Another example is purchasing an annuity that complies with Medicaid’s rules, thus turning a liquid asset into an income stream.

Establishing Trusts

Certain types of trusts can be used to protect assets. There are irrevocable trusts designed to hold assets outside of the Medicaid applicant’s estate.

Examples of such trusts is an Irrevocable Income Only Trust (IIOT) where the individual does not have direct access to the principal but may receive income generated by the trust.

Caregiver Agreements

Formal agreements where a family member is paid for providing care. This must be a formal and legally binding agreement that stipulates the scope of services and compensation.

A common scenario would be a contract between a parent and an adult child who provides caregiving services, with compensation that is in line with local rates for similar services.

Utilizing Exemptions For Spouses

Protecting the financial stability of the healthy spouse through spousal impoverishment rules.

This can be done by setting aside a certain amount of assets and income for the non-applicant spouse, known as the Community Spouse Resource Allowance (CSRA) and the Minimum Monthly Maintenance Needs Allowance (MMMNA).

Gifting And The Look-Back Period

Gifting assets can lead to penalties if done within the look-back period. However, small, carefully planned gifts might sometimes be used in certain planning strategies. Gifts are usually highly scrutinized.

Purchasing Long-Term Care Insurance

Long-term care insurance can help cover the costs of care without depleting assets, potentially avoiding the need for Medicaid entirely.

The five-year look-back period is a complex aspect of Medicaid planning, but understanding it is crucial when preparing for the potential need for long-term care. Hiring an elder law attorney to tailor these strategies to you or your loved one’s specific circumstances can potentially save thousands of dollars. The complexities of Medicaid rules and the variations by state necessitate careful planning and legal guidance. Working with a knowledgeable elder law attorney can ensure that these strategies are implemented effectively, preserving the dignity and financial stability of the elderly while ensuring they receive the care they need. If you have any questions, please call our office, or send us a call-back request.

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