In New York, nursing home Medicaid has a 5-year lookback period. That means if an individual goes into a nursing home (or rehab) and applies for Medicaid to cover the bill, Medicaid will look back at the individual’s records for the past 5 years to see if any gifts – or transfers – were made to any person or trust. If so, Medicaid will not pay for the care – they will impose a penalty period based on home much was transferred.
Medicaid home care in New York, on the other hand, has never had a lookback period. Although the legislature has enacted a 2 1/2 -year lookback period, it has not yet been implemented, so at the time of this writing, there is still no lookback period for home care.
Last-minute estate planning (or transfers):
When we are doing planning for someone who already needs care – let’s say home health aides in the house – and has assets in excess of the Medicaid limits, we can do transfers (such as to a family member or a trust) and go ahead and apply for Medicaid home care. The Medicaid agency does not care if we just transferred assets out of the individual’s name. As long as the person is under the asset limit at the time we apply, and as long as we’ve sheltered any excess income, we can get Medicaid in place to pay for the care.
Most, if not all, other states do not allow this type of last-minute transferring of assets. Although New York’s generous rule is changing, it has not changed yet and we are still able to protect people’s life’s savings and get their home care paid for by Medicaid. However, doing estate planning and transfers this late in the game has its pitfalls.
Pitfalls of waiting until the need for care arises to transfer assets:
When we are doing estate planning for someone who already needs care, we must carefully consider not only how to protect the person’s life’s savings in the present, but what might happen if the person requires nursing home (or rehab) in the future. Even though Medicaid has turned a blind eye to the assets that were just transferred in order to qualify for home care, it will not ignore those transfers if the person requires nursing home or rehab.
For example, if something happens and this person needs nursing home care between now and the next 5 years, Medicaid will look back 5 years and penalize those transfers. It will take the amount of the transfers and divide it by the regional nursing home rate and arrive at a number of months Medicaid will not pay for the nursing home care.
Example: if a transfer of $200,000 was made, they will divide $200,000 by $13,415 (regional rate in NYC on 2022) and arrive at a penalty period of 14.9 months. For those 14.9 months, the person would have to pay privately.
Hedging our bets:
In order to avoid the above result, people doing their last minute planning once home care is needed are going to want to hedge their bets. We want to plan for what we will do if the worst-case scenario does occur and nursing home care is needed in fewer than 5 years from when the transfers were done. Let’s say Mom has $200,000 in countable assets and now needs home care. She transfers the $200,000 to her daughter to “hold onto”. This is known as a “gift”. If that is the plan, I always counsel Mom and her daughter to leave that $200,000 gift intact and do not use it for the next 5 years. The reason for this is that if Mom needs nursing home within that period, the only way to avoid that 14.9-year penalty period is to return the entire $200,000 to Mom – which will then nullify the transfer. Importantly, a return of anything short of the entire gift will not nullify the transfer, and a penalty will be imposed on the entire $200,000.
Once the gift is returned in full, we can do the next best plan, which I call “Plan B”. Plan B would be to protect roughly half of Mom’s money. The money still must be gotten out of Mom’s name, because she must be under Medicaid’s resource limit. Now we can do a new “gift” to daughter of $100,000 instead of the original $200,000. That new gift would result in a penalty period of 7.45 months. Mom would have to pay privately for 7.45 months of her nursing home stay. We will use the remaining $100,000 to accomplish that. However, the remaining $100,000 must also come out of Mom’s name, because we must get her under the resource limit. To do this, Mom will make a loan to daughter of the remaining $100,000 pursuant to a Medicaid-compliant promissory note, and the daughter will use that money to privately pay the nursing home for the 7.45-month penalty period that the gift created.
What we accomplished by leaving the original gift intact is we cut the potential penalty period in half and reserved enough of Mom’s money to enable her to pay privately during that period.
What’s the optimal plan?
The above plan is our strategy for the worst-case scenario. However, in the best-case scenario, Mom would have transferred the $200,000 a little earlier – when she was mentally and physically healthy and did not need care. This way, the 5-year clock would be ticking long before the potential need for nursing home arose. The earlier we start, the more likely we are to protect the assets that Mom worked her whole life to earn.