In addition to looking at an applicant’s current financial status to determine eligibility for Medicaid benefits, the state also looks at transfers of money or property over the past five years. This five year period is sometimes referred to as the “lookback period.” The purpose of looking back at previous transfers is an attempt to penalize people who try to game the system in order to receive benefits.

In general, any uncompensated transfer, or below market value transfer, will trigger Medicaid eligibility penalties. Gifts to children, grandchildren, and other family members are included. Even though there is a $14,000 per year gift tax exemption for federal tax purposes, this exemption does NOT apply for purposes of the Medicaid loopback period. So even if you give each of your kids $10,000 per year without triggering federal gift taxes, those gifts that were made over the past five years would still count when calculating Medicaid eligibility penalties.

Other, perhaps unexpected, transfers that count are gifts to charities and religious institutions. In Missouri, any gifts to charities made in the previous five years will be added up and included when calculating eligibility penalties. Gifts to religious institutions, even in the form of tithing, are also included in the lookback. Some states do exempt gifts to charities if it can be shown that it involved a pattern of giving that predated the five year lookback period, but even these can be looked at with suspicion, so please contact a local elder law expert to find out the rules in a particular state.

Not only are outright gifts of money or property looked at, but also any below market transfer of goods or property. For example, if, in the past five years, you sold a used car that had a fair market value of $9,000 to your child for $3,000, the difference of $6,000 would be considered an uncompensated transfer just as if you had given away $6,000 directly in cash.

Also, as part of the application process, all financial statements will be looked at for other transfers. Any transfer out of an account that is unaccounted for will be considered an uncompensated transfer. Also, even if the account in question is a joint account, any withdrawals by the non-applicant account holders, that were not first deposited in the account by the non-applicant, will be considered as uncompensated transfers from the Medicaid applicant.

In the next blog post, we will look at how the eligibility penalty is calculated. Please see an elder law attorney to determine what your best course of action is for your planning purposes.