Many people we meet with have heard of the Medicaid (ALTCS) Five-Year Look-Back Period, but few people understand it—too often this type of attempt at asset protection has far-reaching, unintended consequences. [Arizona Long Term Care System (ALTCS) is the Medicaid program in Arizona covering long term care expenses.]
What is it?
In general, ALTCS customers/applicants are penalized for Uncompensated Transfers made during five years prior to their application. Uncompensated Transfers are when assets or income are transferred to another without receiving equal value in property or services in return. Often, this is referred to as a gift. (e.g., gifting your home, money, providing financial support to family or friends, donations, transfers to an irrevocable trust, etc.)
How are the applicants/customers penalized for Uncompensated Transfers?
Assuming the applicant otherwise qualifies for ALTCS, the result is a Transfer Penalty Period during which ALTCS will not pay for long term care services. (Medicaid medical coverage may continue during the transfer penalty period.) After the Transfer Penalty Period is over, the long term care coverage should commence (or resume, as the case may be).
How is the Transfer Penalty Period Calculated?
The transfer penalty is calculated by adding up the Uncompensated Transfers that occurred during the five year period prior to the application, in excess of $500/mo, and dividing that total value by the average monthly private pay rate of skilled nursing care in the county in which the applicant resides. The resulting figure is the number of months that ALTCS will not pay for that customer’s long term care.
For example, if mom gave her house to her daughter to avoid the “State from taking her house,” ALTCS will divide the value of the house ($100,000) by the monthly private pay rate ($7,204.17 in Maricopa County), to obtain the number of months (13.9) ALTCS will not pay for mom’s care at an assisted living facility.
Are there exceptions to this rule?
Yes, there are a few. Because ALTCS policies are complicated, we strongly recommend you consult with an experienced attorney familiar with ALTCS policies before attempting any gift strategy for asset protection purposes.
Do I have to provide five years of financial records to ALTCS for my application?
Unless there was gifting, usually not. There may be a few exceptions, such as if a major asset was sold, such as a house, within five years prior to the application.
What if there already was a gift within five years of the ALTCS application?
Perhaps the gift may qualify as an exception.
Or, perhaps the assets, income, or equivalent value of the gift can be returned to the applicant. (The entire amount must be returned in order to avoid the transfer penalty.)
There may be steps you should take while some funds still remain to deal with the transfer penalty or help minimize the penalty.