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Delaney and Delaney Legal Blog

Wednesday, September 6, 2017

The Dreaded Five Year Look Back

submitted by Brian J. Delaney, Esq. 

Timing is everything, especially when it comes to long-term care/asset protection planning.  Enter the dreaded "Five Year Look Back."  It is one of the first things a prospective client asks me about.  When applying for long-term care MassHealth benefits, the applicant must disclose all transfers for less than fair market consideration made in the previous 60 month (or 5 year) period.  If MassHealth treats the transfers as disqualifying, then the applicant will be denied benefits for a period of ineligibility known as the penalty period.   The penalty period is calculated by dividing the gift amount by the transfer divisor, which is the average cost of a nursing home in Massachusetts.  For example, a $50,000 gift divided by $354 (2017 transfer divisor) would generate a penalty period of 141 days.  Who pays the nursing home for those 141 days? Often, the family member will need to "cure" the gift to pay for the long-term care costs.

The penalty period begins when the applicant is "otherwise eligible" for MassHealth benefits.  For a single person, this means she has total of assets of less than $2,000.  Under the old law that was in effect until 2006,  the penalty period began to ran at the time of the transfer.  Therefore, you could have made a gift of $50,000 knowing that it would be safe as long as you didn't need to apply for nursing home care benefits during the short penalty period.  Unfortunately, the current law states that the penalty period won't begin to run until the applicant is in the nursing home and has very little in assets. This means any disqualifying transfer made within the five year look back period will affect eligibility. 

Timing is critical when it comes to applying for MassHealth benefits.  The $50,000 gift made 5 years and one day prior to applying does not have to be disclosed and will not affect eligibility.  If the application is filed 4 years, 11 months and 29 days after the gift was made, then the applicant could be facing a penalty period of 141 days instead.   Keep in mind that a larger transfer would trigger a larger penalty period.  A $600,000 home transfer to a child or irrevocable trust could potentially generate a 1,694 day penalty period! 

Not every transfer for less than fair market consideration will be considered disqualifying by MassHeath.  For example, transfers to a spouse or a disabled child are non-disqualifying.  There are other specific exceptions related to real estate, such as a transfer to a "caretaker child," but it is necessary to sit with an elder law attorney to determine if such transfers meet the regulatory requirements.  Technically, transfers made within the five year look back period are not disqualifying if "the resources were transferred exclusively for a purpose other than to qualify for MassHealth."  Although we have successfully defended transfers under this regulation by using affidavits or other documentation, MassHealth has unofficially taken the position that older people can't make gifts without considering the MassHealth implications and therefore any gifts made within the five year look back are disqualifying.

The five year look back went into effect on February 8, 2006.  Prior to that date, any outright transfer was subject to a three year look back.  Although there have been rumors of a seven or ten year look back, it has not been seriously considered by Congress...yet.  Medicaid spending is a hot-button issue and in today's current political climate, anything is possible.  

If you would like to sit down and discuss the pros and cons of advanced asset protection planning, please do not hesitate to contact me.

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