For anyone that has discussed the five-year lookback regarding Medicaid has heard many stories about what this means. Typically, there are pieces of truth and misinformation within those stories. So, what really is the five-year lookback, and what does that mean for Medicaid planning?
The basic definition of the “five-year lookback” is that Medicaid wants to know what you have done with your assets within the last five years from the date that you apply for benefits. This does not necessarily mean that you will need to show Medicaid all bank statements or tax returns from the last five years. However, Medicaid is very interested in the money that you have received and if you have “divested” any assets within the last five years. Knowing what divestments are, and how Michigan Medicaid handles them, it very important to Medicaid planning.
Divestment is the term that Medicaid uses when referencing any asset that you have transferred for less than fair-market value. Typical examples of this are gifts to children, transferring a car to a niece’s name, or paying off a student loan for grandchild. Even a loan to someone, if not in writing or repaid, could be a divestment by Medicaid’s standards in Michigan. Most of the time, the transfer that led to the divestment was made with good intentions but cannot be undone for one reason or another. So, what now, what does Medicaid do with divestments?
Once a divestment is reported to Medicaid because of the five-year lookback, Medicaid assess a divestment penalty period. This penalty period does not mean that someone must pay Medicaid back for the divestment. But rather, Medicaid will not pay for the nursing home bill for a certain amount of time. The amount of time that Medicaid will not pay depends primarily on the value of the divestment and how much the nursing home costs on a monthly basis. This can be a significant burden in some cases where assets are no longer available to continue paying the nursing home bill while waiting out the penalty.
The five-year lookback allows Medicaid to find out if you have transferred assets for less than fair-market value in the last five years. Medicaid then takes the value of those transfers and will not give benefits for a period based on that value. Even though the transfer may have been done in good faith, the five-year lookback can create a huge problem. If you have questions about the five-year lookback or divestments, schedule a consultation with an experienced Michigan elder law firm today.