When an someone applies for long-term care Medicaid (e.g., assisted living or nursing home care), there is an asset limit to be eligible for Medicaid. If the person has assets that exceed the asset limit, then the person will not qualify for Medicaid. Some try to reduce their asset limit by gifting or transferring assets to qualify for Medicaid, but Medicaid has a five-year lookback period that is designed to prevent people from gifting/transferring their assets for the purpose of qualifying for Medicaid.
Assets transferred within five years from applying for Medicaid are reviewed by a Medicaid agency. The transfers reviewed also include transfers made by the applicant’s spouse. If the Medicaid agency finds that the transfers violate the lookback period, then a penalty period of Medicaid ineligibility is established. The penalty is state specific and usually starts on the date the applicant is determined to be ineligible for Medicaid.
The penalty exists because if the assets were not gifted/transferred, then the assets could have been sold to pay for long term care. The lookback period is in place to prevent wealthier people from taking advantage of Medicaid benefits.
It is important to consult an attorney before making a transfer of real estate because the transfer could violate the five-year Medicaid lookback period or have disastrous tax consequences. Generally, in your later years of life, quitclaiming real estate to family members is not recommended. A quitclaim deed would be a transfer/gift that would violate the Medicaid lookback period and there would be tax consequences. A much better alternative, depending on your situation, is a lady bird deed.
A lady bird deed (aka life enhanced estate deed) is an instrument used in Florida that allows real estate to transfer at the death of a grantor (the person that transfers the property) to a grantee (the person receiving the property upon the grantor’s death). Using a lady bird deed does not violate the five-year Medicaid lookback period and it will take advantage of the step up in basis tax treatment.