The five year lookback is simply an audit period. The caseworker for the State who is reviewing the application can ask for five years worth of financial transactions. This includes real estate transfers and vehicle transfers.
This is critical: While people say one cannot make gifts during that five year lookback, the truth is that gift is an incorrect term. The actual term is transfers for less than fair market value.
So, if an applicant sold their $100,000 home to someone, a child, friend, anyone, for, say, $75,000, he or she made a transfer for less than fair market value of $25,000. That will be penalized. I will explain the penalty further in this blog.
What if an applicant wrote a check for $10,000 to their church because it had Covid related financial issues? What if the applicant gave $20,000 to a child who was out of work and was going to be evicted from their home if they did not pay? What if the applicant paid for a grand child’s wedding or college tuition? What is there was a $20,000 withdrawal and no one knows what it was for? It is presumed to be a transfer and incur a penalty. It is up to the applicant to prove he or she is eligible.
These are ALL transfers for less than fair market value. There need not be donative intent as would be considered in the use of the word gift. Beware!
The penalty works like this. The caseworker for the state aggregates all transfers for less than fair market value. He or she takes that amount and divides it by the average cost of nursing home care in the State of Pennsylvania which is currently $352.86. If that total transferred amount was $30,000, the penalty would be 85 days. If the nursing home charges $375 a day, that means there is an outstanding bill payable to the nursing home of $31,875.00.
However, the penalty does not begin until the applicant is out of money and cannot pay the bill. Who pays? Well the person to whom the transfer was made can return the money or value of the gift and cure the penalty. If they do not have the money to return, the face a possible lawsuit by the nursing home for the unpaid bill. This law is called Filial Responsibility. Google it.
Please do not think you can hide a transfer or that you can give a sob story to the caseworker. Those do not work. They are thorough and have full access to the tax records of any applicant. As part of the application process you are required to give them authority to do a financial background investigation.
All is not lost however. If a transfer is uncovered early on, before the person has spent down all of their funds, elder law attorneys are able to use this money by recharacterizing it and use those extra funds that would be spent down anyway to pay through the penalty period. While Senior Care Resources does not provide legal advice, we are able to review the application and help uncover these situations. When we do, we will normally refer you to an elder law attorney to cure the transfer without anyone having to pay anything back. Its complicated but it works.
Finally, there are circumstances where a transfer is permissible. This is also an area where Senior Care Resources is knowledgeable and can help you.
One of the biggest benefits of hiring Senior Care Resources is that we know what the rules are and know when you have a problem, or an opportunity to preserve assets and refer you to legal experts in the field.