I often get asked questions around gifting and the Five Year Rule and what it all really means. Probably the most efficient way to go over at least the basics of that is to reference a few sections from my book The Long Term Care Solution.
Rule Two: The Five Year Rule
This is probably one of the most misunderstood rules around. The five year “look back” period refers to how far back Medicaid will look in Care Assistance Planning to see if there were any gifts or transfers that would trigger a period of ineligibility. Let’s take a look at what the Five Year Rule does mean before showing what it doesn’t mean.
It DOES mean:
- Have the Medicaid office look back five years from the date of application to see if there were any gifts made.
- Imposes a period of ineligibility for all collective gifts made within the five years before the date of application.
- The period of ineligibility is the sum of those gifts divided by the cost figure determined by the Medicaid office to be a “monthly average cost” of skilled nursing home care (currently about $6,000) to come out to a number of months of ineligibility. (See below in the rule on gifting for an example).
- The period of ineligibility begins from the date of application.
It DOES NOT mean:
- That the maximum period of ineligibility is five years; it can be much more.
- That a gift of $6,000 a year ago already expired because the ineligibility month started when the gift was made (it used to be that way, but it is not under current law)
The five year rule can be a little tricky and can profoundly and negatively impact planning. As you saw in the story at the start of this section, not understanding the fine points can lead to much more than five years before Medicaid Care Assistance Planning starts.
Rule Three: Gifting
Gifting can be an important and effective technique in Care Assistance Planning, but it has to be done in absolutely the right way. Even more important to understand, gifting within five years of applying for Medicaid Care Assistance is not necessarily a bad thing. In fact, many “crisis” Care Assistance Plans we develop include a lump sum gift with an accompanying ineligibility period, applying for Medicaid to get the period of ineligibility started, and then having the family take over paying for care during that period of ineligibility because the net gain to the family (along with the other spend down techniques) still has the family come out ahead.
Probably the biggest misconception around gifting is something I already mentioned: the annual amount of gifting excluded from gift taxes is not excluded from Medicaid scrutiny. The $13,000 amount most people have heard about (which jumped to $14,000 January 1, 2013) only relates to federal gift taxes. It has nothing to do with Medicaid. Another piece of that same misconception is that if the gifts are spread out among a lot of different relatives, then the implications are diluted. Again, this relates to the federal gift tax in that you can give $100,000 as 10 gifts of $10,000 each and it is not gift taxable, but there would be gift tax implications if you just gave one $100,000 gift to a person. As far as Medicaid is concerned, there is no difference since it counts up the total gifts given within the last five years regardless of the recipient or recipients (excepting spouses).
Care Assistance Planning can have a huge impact on the family and a spouse staying out of the facility. Unfortunately, doing Care Assistance Planning the wrong way can also have a huge impact on the family if done incorrectly and not for the better.”
While there is certainly a lot more to the Five Year Lookback period and gifting, these are the basics. For more information on Medicaid and other care assistance planning, please sign up to get your free e-book and information packet at www.CareAssistanceCenter.com/carepacket.