How to Avoid the Medicaid Five Year Lookback Period in New York

To qualify for Medicaid, applicants must meet strict income and asset limits. As a result, some individuals may be tempted to give away their assets before applying to meet these requirements. However, Medicaid has measures in place to discourage this practice.

If an applicant transfers assets for less than fair market value within the five years preceding their application, they will face penalties. Medicaid will calculate a penalty period by dividing the total value of the gifted assets by the average monthly cost of long-term care in the state. During this penalty period, the applicant will be ineligible for Medicaid benefits and must cover their own long-term care expenses until the penalty expires and they become eligible for coverage.

Fortunately, there are legitimate strategies available to help individuals reduce their assets and monthly income to meet Medicaid eligibility requirements while successfully navigating the five-year lookback period in New York.

Purchasing Exempt Assets

As of 2024, an individual aged 65 or older applying for Medicaid benefits in New York for long-term care must have assets of only $31,175 or $42,312 for married couples where both spouses are applying.

If you have assets in excess of this limit, one strategy is to purchase Medicaid-exempt assets, such as:

• Primary residence: An individual's home, up to $1,071,00 in equity value in New York, is generally exempt from resource limits.

• One vehicle: A single vehicle, regardless of its value, is typically exempt. If an individual owns multiple vehicles, the one with the highest value is usually exempt.

• Personal belongings and household goods: Items like clothing, furniture, and appliances are exempt from resource limits.

• Burial plots and funeral expenses: Burial plots and funds set aside for funeral expenses, up to $1500, are exempt.

• Life insurance policies: Term life insurance policies and whole life insurance policies with a face value of $1,500 or less are exempt.

• Retirement accounts: Some retirement accounts, like IRAs and 401(k)s, may be considered exempt assets if they are in payout status. This means that the account holder is receiving regular distributions from the account. Other than payout status, there are other factors to be considered in determining exemption such as state-specific rules and distribution details.

Purchasing exempt assets, even during the Medicaid 5-year lookback period, will not result in penalties. It's crucial to note, however, that while a home may be exempt when determining Medicaid eligibility, it is still subject to the Medicaid Estate Recovery Program. Under this program, Medicaid will recoup the costs of long-term care from the individual's estate, which includes the home.

Spend Down Assets

Spending down assets is also another way to reduce your assets in order to be Medicaid-eligible. This strategy can be done during the five-year Medicaid lookback period. Properly spending down assets on exempt items and services can help individuals qualify for Medicaid without incurring penalties. Some examples of allowable spend-down expenses include:

• Making necessary home repairs and modifications: Individuals can use their assets to pay for essential home repairs, such as fixing a leaky roof or replacing a faulty heating system. They can also make modifications to accommodate mobility or accessibility needs, such as installing wheelchair ramps or grab bars.
• Purchasing medical equipment and supplies: Excess assets can be used to purchase medically necessary equipment and supplies, such as wheelchairs, hospital beds, or oxygen equipment. These purchases can help improve the individual's quality of life and are considered exempt from Medicaid's resource limits.
• Hiring personal care services: Individuals can spend their assets on hiring personal care aides or home health services to assist with daily living activities, such as bathing, dressing, and meal preparation. These services can help individuals remain in their homes and are typically exempt from Medicaid's resource calculations.
• Paying off outstanding debts and bills: Using assets to pay off legitimate debts, such as credit card balances, medical bills, or property taxes, can help reduce an individual's overall assets and qualify for Medicaid. It is essential to maintain proper documentation of these payments.
• Paying for legal fees related to Medicaid planning: Individuals can use their assets to pay for legal services related to Medicaid planning, such as drafting a Medicaid Asset Protection Trust or seeking advice on spend-down strategies. These legal fees are considered allowable expenses during the spend-down process.
• Purchasing Medicaid-compliant annuities: Individuals can use their excess assets to purchase Medicaid-compliant annuities, which can help them qualify for Medicaid while preserving some of their wealth. A Medicaid-compliant annuity is an irrevocable, non-assignable, and actuarially sound annuity that meets specific requirements set by the Deficit Reduction Act of 2005. The monthly payments from the annuities, however, count towards one's monthly income limit for purposes of Medicaid eligibility.

Consulting with a knowledgeable Medicaid planning attorney like us is important when employing any of the above strategies to ensure that the purchase of exempt assets or spend-down process is carried out effectively and in compliance with all relevant rules and regulations.

Loans

Loans where the Medicaid applicant is the lender can also reduce one's assets for purposes of Medicaid eligibility. These loans can even be granted to the Medicaid applicant's children and other family members. However, the loan must be actuarially sound, cannot be cancelled upon the lender's death, and properly documented with a promissory note, which should include the loan amount, interest rate, repayment terms, and the borrower's signature. The interest rate should be set at or above the applicable federal rate (AFR) to avoid any gift tax implications. By loaning the money, the Medicaid applicant reduces their assets by the loan amount, potentially making them eligible for Medicaid benefits. It is crucial to ensure that the loan is a bona fide loan and not a gift in disguise. The borrower should make regular payments according to the terms of the promissory note, and the Medicaid applicant should deposit these payments into their bank account. Proper documentation and adherence to the loan terms are essential to avoid Medicaid penalties.

It is important to note that while loans can be an effective strategy for reducing assets, they should be utilized under the guidance of a qualified Medicaid planning attorney to ensure compliance with all relevant rules and regulations.

Medicaid Asset Protection Trust

Placing assets in an irrevocable Medicaid Asset Protection Trust is also a viable strategy, for as long as made at least 5 years before applying for Medicaid. Assets transferred to a trust within 5 years from Medicaid application violate the lookback period and will be computed for penalty.

Medicaid planning involves complex legal and financial strategies that require specialized knowledge and expertise. An experienced Medicaid planning attorney like us can help assess your unique situation and recommend appropriate planning tools. Should you need assistance in Medicaid planning, the Law Offices of Albert Goodwin are here for you. We are located in Midtown Manhattan, New York, NY. Call us at 212-233-1233 or email [email protected] to schedule a consultation.