Nursing home care can be expensive, which why many elderly individuals attempt to qualify for Medicaid when they move into assisted living facilities. However, many people are surprised to learn there are strict asset and income limits on those applying for Medicaid.

In order to get under these limits and qualify for Medicaid, some individuals will try to simply give away their money and/or assets to their children — but doing so can be a serious mistake.

Understanding the five-year “look-back” period

As you can imagine, lawmakers don’t want you to be able to give your money away and instantly qualify for Medicaid, which is why they have created laws that penalize those who transfer certain assets within 60 months of applying for Medicaid. If you choose to transfer money or assets during this five-year “look-back” period, the government will likely determine that you are ineligible for a certain amount of time.

The length of this penalty period is generally determined by dividing the total amount you transferred by the average monthly cost of nursing home care.

For instance, if we were to assume that the average cost of nursing home care in Ohio is a nice round number such as $7,500, and you decide to gift $75,000 to your children during the five-year look-back period, then you would be ineligible for Medicaid for 10 months ($75,000 / $7,500 = 10). This means you would have to cover the cost of your own care during this 10-month period, which could be hard if the $75,000 you gave away was all you had.

Keep in mind, however, the numbers above are for illustrative purposes only, and may not reflect the actual costs of nursing home care in Ohio. But, even this simple example shows how failing to properly plan for Medicaid can be a serious mistake — especially if you try to skirt the rules by giving your money away.

If you have questions about Medicaid or about what types of transfers may not impact your eligibility (including possible transfers between spouses), contact an experienced estate planning attorney as soon as possible. Waiting too long can be very costly.