The 5-year look-back is the single most important rule in Medicaid planning — and the one that trips up the most families.
How does the Medicaid 5-year look-back work?
When you apply for long-term care Medicaid, the state reviews your financial records for the previous 60 months — the 5-year look-back period. Any assets you gave away or sold for less than fair market value during that window can trigger a penalty: a period of Medicaid ineligibility. The penalty length is calculated by dividing the value of the improper transfer by your state's average monthly nursing home cost. So a $100,000 gift in a state with a $10,000 monthly figure creates roughly a 10-month penalty. The penalty doesn't start until you'd otherwise qualify, which can leave you without coverage when you need it most. (Note: California eliminated its look-back; rules vary by state.)
How can you avoid look-back penalties?
The cleanest way to avoid penalties is to plan early — make any asset transfers, including funding an irrevocable Medicaid asset protection trust, more than 5 years before you apply. Transfers that clear the look-back window aren't penalized. Some transfers are exempt even within the window, such as those to a spouse, a disabled child, or a caregiver child who lived with you and provided care. If care is needed sooner, an elder law attorney can use crisis strategies to soften the penalty. Because miscalculating the look-back is costly, call 1-800-MEDIGAP before making any gifts or transfers.