Life is filled with many surprises — both good and bad. Some things can easily be prevented, while others we can only plan for.

One thing that many tend to be surprised by are the realities of long-term care — and the costs associated with such. Forward-looking estimates show that 58% of men and 79% of women aged 65 and older are likely to require long-term care at some point in their lives. On top of that, the average length of stay for men in skilled nursing facilities is over 2 years, and almost 4 years for women. As mentioned in an earlier post titled “Medicaid Crisis Planning: There Are Options!,” the cost of skilled nursing care can reach upwards of $8,000 per month (Michigan: $8,182-Private, $7,604-Shared & Wisconsin: $8,517-Private, $7,817-Shared).

A rather common misconception about Medicaid planning is that simply adding a child to a deed, transferring assets, or utilizing the “$14,000 annual gift exclusion” are sure ways to protect one’s wealth from the cost of long-term care. Unfortunately, not only can these “ideas” be bad ones (based on family dynamics), but can quite literally disqualify an individual from Medicaid. It is worth noting, the annual gift exclusion is a real thing (for gift taxes) but unfortunately is not a “free pass” to give away your money the day before entering a nursing home. In any of the above-mentioned transfers, the results can vary in protecting either (1) all, (2) some, or (3) none of the assets — depending upon (a) how, (b) how much, and (c) when the transaction occurs. The devil is always in the details. In the world of Medicaid planning, we call it “the 5 year look-back period.”

Simply put, a transfer of an asset for less than fair market value, within 5 years prior to applying for Medicaid, will result in a divestment penalty. A divestment penalty will disqualify an individual from receiving Medicaid benefits for a period of time. Say for example an individual gifts $100,000 to children 3 years prior to applying for Medicaid, and the average monthly cost of nursing home care is $8,000. In this scenario, the divestment penalty would be 12.5 months. ($100,000/$8,000= 12.5). During this penalty period, the individual would be required to private pay — mostly likely the gift would need to be returned!

I once had someone ask me “who has 5 years?.” Though this was a client attempting to lighten the mood, the question does shed light on the very core of Medicaid planning. These discussions are usually filled with “what if’s,” and the answers most always have a relation to time in some form or fashion. Certain actions (or inaction) can lead to rather harsh unintended consequences. Some planning techniques work great when the 5 year look-back period is not a concern but can run afoul of Medicaid divestment rules when not attainable.

Whether you are looking to prospectively plan — or are in need of immediate legal assistance, schedule a no-cost educational meeting. I would be happy to discuss how Jones Law PLC can help you plan, protect, and grow.


Attorney Joseph C. Jones advises clients on estate planning, asset protection, business law, and real estate law matters. Joe can be reached at (906) 914-4181 or joe@joneslawplc.com. Jones Law PLC is a Michigan & Wisconsin based provider of legal services.