Many people who are preparing for retirement decide to create estate plans. Those who already have estate planning paperwork may review and update their documents before retirement. People’s priorities and circumstances change over time, making the regular review of estate planning documents a wise choice for most people.
One of the considerations that may affect someone’s plans for retirement and their legacy is the need for medical support later in life. Many older adults need to apply for Medicaid because Medicare has limits on long-term care coverage. As such, they may need to consider Medicaid’s five-year lookback period when putting together an estate plan.
What is the lookback period?
Medicaid is technically a benefit based on financial need. Pennsylvania imposes limits on both income and personal property when people apply for Medicaid benefits. Almost any countable assets could prevent someone from qualifying for coverage. The one valuable asset that doesn’t affect eligibility is someone’s primary residence.
Some people trying to qualify for Medicaid transfer assets into trusts or provide their loved ones with valuable gifts. The five-year lookback period aims to deter strategic money moves right before someone applies for Medicaid. Any transfers or gifts completed in the five years before someone’s application can count against their eligibility. The state may quantify the value of those resources and then convert that figure to a set number of months of long-term care. Applicants have to pay out of pocket until the appropriate number of months have passed.
How the lookback period can affect estate planning
One of the most profound consequences of the five-year lookback period is how it creates an incentive to begin estate planning as soon as possible. The earlier in life someone plans to address their potential future support needs, the less likely they are to be at risk of a sizable penalty if they ever do apply for coverage. Medicaid planning might involve making gifts earlier in life or moving assets into a trust. Efforts to diminish someone’s personal holdings can help them qualify for Medicaid later in life and may also protect their resources from estate recovery efforts after they die.
Properly planning for Medicaid before someone requires long-term care can reduce personal risks and help someone maximize their legacy. Those who include Medicaid planning in their estate planning efforts may feel more confident about their financial position as they age.
