Is There A Lookback Period For Gifting In Medicaid Asset Planning?
The lookback period for all Medicaid rules varies state by state. In the state of Florida, the lookback period is five years from the date of filing the Medicaid application. So, if you are meeting me this month and you are looking for Medicaid this month, we will only be concerned about the 60 months prior to this month (the month that we are filing the Medicaid application).
The Medicaid application has a section under criminal penalties that asks you to state whether or not you have gifted or transferred assets within the previous five years. We will of course answer with truthfulness and disclose whether or not that’s occurred. Transfers that were made for the purposes of qualifying for Medicaid are invalid. If we haven’t broken those rules, then that leaves us with the ability to seek an exception for hardship. So, you are not necessarily going to be in trouble or have your application affected if you have gifted; there are ways to handle that.
Is There A Certain Amount Someone Is Allowed To Gift In The Past 60 Months?
Under the gift tax rules, you are permitted to gift $14,000 per year per person without having to file a gift tax return with the IRS. Medicaid does not follow these rules. The Medicaid rules purely prohibit all gifting. In fact, gifting can potentially put you in hot water when it comes to Medicaid qualification.
What Is Meant By Sheltering Your Assets? What Are The Ways Of Doing So?
Sheltering an asset and asset protection are synonymous terms that mean utilizing the existing laws and Medicaid rules in order to preserve assets for the Medicaid applicant’s quality of life or quality of care. There are two common categories of asset sheltering or protection. The first category is preserving assets for things that are needed for the Medicaid applicant, as well as paying off the liabilities that the Medicaid applicant has. Paying off the liabilities is important, because once they qualify for Medicaid, then they will not have the money to take care of any debts or anything of that nature.
The Medicaid rules allow us to spend money on things such as pre-paid funeral and cremation or burial plans, and home repairs. Home repairs can be very extensive if needed. If the person is able to leave the nursing home, then there needs to be a safe place for them to go. So, we are able to use that person’s money to pay off existing debts, mortgages and so forth. Those are the common things that we can shelter for that purpose. We can also use the applicant’s money to pay for the legal fees associated with Medicaid planning. Though spending the applicant’s money on his or her assets is not necessarily sheltering, it is spending for his or her benefit.
The second category has to do with the legal exceptions to the rule. In these legal exceptions, the rules are different from state to state. I’m addressing the main tools that are used in the state of Florida, which are discussed further on this website. Typical ways to shelter in Florida include a lump sum personal services contract for caregiving services, pooled special needs trusts, promissory notes, real estate purchases or income producing property purchases, certain types of annuities, and in the case of married couples, using spousal refusal. Those are the most common legal exceptions when it comes to the transfer of asset rules to preserve money that we can utilize in Medicaid planning.
How Can Revocable Or Irrevocable Trusts Be Applied In Medicaid Planning?
All trusts will have to be analyzed by the elder law attorney who you are working with. The trusts will then be reviewed by the Department of Children and Families in Florida, which will administer the Medicaid rules and determine eligibility. There are two main categories of trusts that can be generally addressed. The first type is the revocable living trust. Under the Florida Medicaid rules, if the applicant has created a revocable living trust and has put assets into that trust, then the assets are countable if they are normally countable under the Medicaid rules. In other words, revocable trusts do not protect assets in the state of Florida; that is a very common misconception.
If the revocable trust has assets in the name of the trust that are considered not countable, then the assets are not countable. Countable assets held and owned by a revocable trust, such as savings bonds, checking accounts, savings accounts, money markets, cash value annuities, cash value life insurance, mutual funds and so forth, are going to be subject to the spin down rules for Medicaid. The irrevocable trusts, however, will be construed in a different way. Depending on the wording, irrevocable trusts may not be countable.
The types of irrevocable trusts that are not countable are what are typically referred to as irrevocable, income-only trusts. These trusts have the basic component that they are created by the Medicaid applicant, and that the applicant put the assets in the trust more than five years ago. The trustee cannot use the principle from these assets to pay directly to the Medicaid applicant. So, the Medicaid applicant is irrevocably giving away the rights to principle more than five years old, and Medicaid will not count these assets in the trusts. So, if someone put $500,000 in an irrevocable trust today and gave up the right to principle, then five years from today those assets would not be considered countable under Medicaid rules.
The other types of irrevocable trusts that are commonly not countable are special needs trusts, which are irrevocable. Special needs trusts are generally worded so that the trustee cannot put the trust assets directly in the Medicaid applicant’s account. However, the trustee can directly use the trust money to buy things for the benefit of the Medicaid applicant. In most cases, if you are looking to preserve assets using an irrevocable trust, then you are looking to do so with a degree of advanced planning. At a minimum, I would typically recommend beginning an irrevocable trust at the beginning of a diagnosis, or when a family notices a decrease in independence, mobility or capability in terms of physical and mental actions involving the management of money.
For more information on Lookback Period For Gifting In Medicaid, an initial consultation is your next best step. Get the information and legal answers you’re seeking by calling (904) 398-6100 today.
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