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Medicaid Planning in North Carolina and the Look Back Period Penalties For Gifts to Your Children

By Dennis Toman

Medicaid for nursing home care can destroy a family's savings. Paying $6,000 to $10,000 per month or more for care will leave you and your family broke in no time at all.

To qualify for Medicaid for nursing home care in North Carolina, an applicant must meet certain income, asset and medical need tests. Many times, the applicant is ineligible for assistance because of past gifts that were made during the "look back" period under federal and state law.

When a person has excess assets, one option has been to transfer money and property to trusts or to other family members to reduce countable assets. This type of Medicaid planning is still possible under the new rules, but now it needs to be done further in advance.

Recent changes to the law resulted from the Deficit Reduction Act that went into law February 8, 2006. North Carolina implemented the DRA effective November 1, 2007. There is now a five-year look-back period for gifts to individuals or trusts. Some people think that means the "Medicaid penalty" is also five years. Actually, the total amount transferred during the last five years determines the length of the waiting period, or a penalty, for benefits.

Many people confuse the penalty and the lookback period. The government only considers gifts made during the lookback period, which is the five years immediately prior to the application for benefits. If gifts were made during that time, then a penalty is computed based on the size of the gift.

Penalties depend on each state's rules. In North Carolina, there is a one month penalty for each $5,000 gifted. All gifts during the preceding 5 years are added together, then divided by $5,000. The resulting number is the waiting period for benefits. For example, if you gift $50,000 to a child, that creates a 10 month period of ineligibility.

Any gifts within the past five years will create a period of ineligibility for benefits. If the applicant applies for benefits before the look-back period expires, then the penalty will start only when the applicant:

  • actually applies for nursing home benefits
  • has assets below the allowed amount ($2,000 of countable assets for a single person, more allowed for a married person)
  • is in a nursing home

In other words, under the new rules you can find yourself out of money and still ineligible for Medicaid benefits in the nursing home, unless you get good legal advice and plan ahead the right way. Making gifts is still possible, but you should talk to an expert first.

The best time to plan is five years before a nursing home stay is needed. This type of estate planning for Medicaid allows you to protect your assets and your family. You should consult with a lawyer who knows the ins and outs of good Medicaid planning and how the look back penalty affects you. You need to make sure that you can get the care you need and not leave your family broke.

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