You may eventually require care in a long-term residential facility and worry about affording it. Many people who need long-term care are unable to pay for it out of pocket. In many cases, government assistance programs, such as Medicaid, can help with expenses.
However, governmental assistance programs have strict eligibility requirements with which you must comply. The Centers for Medicare and Medicaid Services wants to determine that your need is genuine. To that end, it examines your financial records for the five years prior to the date of your application. This five-year period is the look-back period.
What types of activity is CMS looking for?
CMS looks for any evidence of transactions intended to meet eligibility requirements by unfair means during the look-back period. For example, you may have sold property for less than its fair market value or given away significant assets. Actions such as these communicate to CMS that your need is not genuine.
How does the CMS penalize you?
Transactions such as these do not necessarily disqualify you from receiving Medicaid benefits. However, the CMS penalizes you for them by denying you benefits temporarily. For example, if you transferred a $10,000 asset and the cost of nursing home care is $5,000 per month, CMS denies you benefits for two months, starting during the month that you submitted your application. If this occurs, it may prevent you from moving into the long-term care facility when you wish.
The CMS does provide some exceptions, allowing you to transfer some of your assets without incurring any penalties. Some property is exempt, and you can make certain transfers to specific people close to you, such as a spouse or a sibling, under particular circumstances.