A common question from clients is … what happens if I go through with preparing a trust to protect assets and Medicaid makes the look back period longer?
Answer: based upon past experience, your plan should still be effective.
One of the common planning tools we use with clients is a trust into which clients retitle their assets. The trust (a separate legal entity) becomes the legal owner of the assets. This is tantamount to making a gift out of the client’s name and ownership. Effectively, this starts (as of 2015) a five year clock – once five years pass, the gift cannot punish the client because the gift is now outside the lookback period.
When an application is made for Medicaid (chronic care Medicaid), to pay the costs of a skilled nursing home, the Department of Social Services (Medicaid) requests five years of statements from banks accounts, investment accounts, tax returns, etc. Medicaid is looking to determine if the applicant made any “uncompensated transfers” (i.e., gifts) within the lookback period. If so, Medicaid imposes a penalty. If the client has transferred assets into the trust beyond the five year lookback period – the transfer is free from any Medicaid penalty.
In the past when the lookback period was turned into a five year lookback period from a three year lookback period, clients that prepared trusts and transferred assets into the trust beyond the three years, but within the five years, were safe from any Medicaid penalties. This was because the change did not happen in one day – it took two years for the penalty period to become five years from three years. Specifically, one month after the law changed, the lookback period was three years and one month. The lookback period was three years and five months – five months after the law changed the lookback period. Two full years after the law went into effect the lookback period fully became a five year lookback period.
Therefore, if any future extensions of the lookback are expected, we should expect that the changes will gradually transition into effect. This would be consistent with prior changes to the lookback period.
Aaron E. Futterman, CPA, Esq. is a partner in the law firm of Futterman & Lanza, LLP with offices in Smithtown, NY and clients throughout Suffolk, Nassau, Queens, Brooklyn, Bronx, Richmond, New York, Westchester and Rockland Counties. He concentrates his practice to Elder Law, Medicaid Planning, Medicaid Applications, Estate Planning, Probate, Estate Taxes, and Estate Administration.