Estate planning in Texas allows people to make arrangements to protect their assets and wishes regarding care and living standards, should they become unable to take care of themselves. Though often used to protect assets and legacy after death, many people are living longer and require specialized and long-term care before they pass away. One provision available to help mitigate long-term expenses is Medicaid planning. Anyone who has few assets and limited income and is in need of assisted living, in-home care or long-term care can apply for Medicaid. However, one stringent requirement is to pass the five-year look back qualification.
Testators have the freedom to update estate plans to give and transfer assets in and out of their estate any time before they die. To prevent challenges that interfere with the approval of a Medicaid application for end-of-life care, people should familiarize themselves with Medicaid’s five-year look back rule.
What is the Medicaid five-year look-back clause?
Applicants must disclose if they have transferred or disposed of assets that could have helped cover the costs of their care. People are not necessarily disqualified if they have sold, gifted or transferred assets, but if they changed ownership for less than fair market value within the five-year period prior to the date on the application or eligibility, there is a penalty period that blocks access to Medicaid long-term care payments. Assets that Medicaid scrutinizes include money, real estate, vehicles, and other tangible possessions. Income and other resources are also factors. Certain types of life insurance, property and income are exempt.
What is the penalty for the Medicaid five-year rule?
The penalty period starts when the applicant becomes eligible or starts living in a nursing home and is assessed according to a calculation of the total value of assets disposed of at less than fair market value divided by the average monthly cost of care. The Texas Medicaid Transfer of Asset Divisor is $172.65, which is also the daily penalty amount and averages out to $5,179.50 a month.
To preserve benefits for individuals who are unable to afford the cost of long-term care on their own, the state uses the Medicaid five-year look back rule to prevent people who may otherwise be able to pay for their end-of-life care from abusing the system. To avoid the penalty, careful planning is necessary so that the disposal, gift and sale of assets occur outside of the five-year look-back period.