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Retired? Gifting money before the 5-year look-back

Bill Morgan

February 4, 2020

One of the most misunderstood aspects of Medicaid is the look-back period for asset transfers and how that affects eligibility for elderly people in need of long-term healthcare.

Many seniors rely on Medicaid to help cover long-term healthcare expenses, such as nursing or assisted living facilities.

Once your assets are diminished, Medicaid kicks in as a social welfare program to help you pay for your care. The program expects you to use your savings to pay for your expenses, until they are gone. Then the assistance starts.

Beware the 5-year look-back period

Many retired individuals or couples start to use long-term financial planning to allocate funds to a spouse or children early, so they can properly qualify for the program’s guidelines.

You might gift a certain dollar amount to a child before you apply for Medicaid.

But the program looks back over your assets for the past 5 years, and any gifts or transfers of assets made within five years (60 months) of the date of application are subject to penalties.

Gifting money while you’re retired saves in the long run

Instead of waiting to distribute assets upon your death, consider allocating funds to family, friends or charities each year.

Not that we can predict when we will need healthcare assistance, but it’s safe to assume that it’s in your future as you age.

Not only will you avoid the 5-year penalty, but the gift also avoids current taxes, avoids the potential of estate taxes, and provides funds that could help a child now.

He or she could buy a home, pay off medical bills, pay off student debt, or jumpstart a retirement account.

If you have questions about financial planning during retirement, contact the experts at Morgan & Associates to set up a meeting today.



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