People who help an elderly relative with financial or medical matters may prepare for the older family member to someday get Medicaid coverage for long-term care. However, you should be careful that your loved one does not incur penalties because of the five year Medicaid look-back period.
Medicaid scrutinizes financial transactions to make sure an applicant does not improperly transfer or gift away assets just to narrow down countable assets to qualify for Medicaid benefits. Fortunately, there are legitimate ways to transfer assets without jeopardizing Medicaid eligibility.
Allowable transfers to spouses
Your relative can transfer unlimited assets to a spouse without triggering look-back penalties. This spousal impoverishment protection lets the non-applicant spouse keep a share of resources. Exact allowances vary by state, but they all aim to prevent a spouse from suffering unnecessary poverty.
Certain transfers to caregiver children
If you provide care for your elderly loved one, you can receive compensation through a caregiver agreement, though the contract must provide reasonable market rates so it does not appear as a gift. However, if you live with your relative for at least two years before your family member applies for Medicaid, you may receive ownership of your relative’s home penalty-free.
Pay down debt
Your family member probably has debts to pay off. Fortunately, Medicaid considers it a legitimate practice to pay off debts such as mortgages, loans or credit cards. While this helps your family member stay financially afloat, it also has the benefit of reducing countable assets for Medicaid purposes.
Establish a funeral trust
Medicaid also considers funding a funeral through an irrevocable funeral trust to cover burial costs for your relative and their spouse to be a non-countable expense. So your family member can plan for a funeral and burial without worrying about running afoul of Medicaid.
These are not the only options, as your relative may also transfer assets to a disabled child or give ownership of a home to a sibling who has lived there no less than a year without penalty. While the look-back guidelines aim to prevent sheltering assets improperly, you have flexible options to realign your loved one’s finances legitimately.