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Trust Law/Level IV · Trusts that care/4.2 Old age and long-term care/Lesson 3

Look-back periods and penalties

How US Medicaid’s 60-month look-back works, how a penalty period is calculated, and which transfers are exempt.

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Exempt transfers carry no penalty at any time: to a spouse, a blind or disabled child, a trust solely for a disabled person under 65, and the home to a child under 21, a co-owning sibling resident one year, or a caregiver child resident two years.
  2. Paying fair market value is not a transfer: paying for care, goods or debts at market price spends down lawfully. Keep written agreements and receipts, because the applicant must satisfactorily show fair value or another purpose under §1396p(c)(2)(C).
  3. A Medicaid-compliant annuity converts savings into income without penalty if irrevocable, nonassignable, actuarially sound, paying equal amounts with no balloon, and naming the state first remainder beneficiary (§1396p(c)(1)(F)-(G)).
  4. Gifts made more than 60 months before institutional care plus application are not counted. The 2026 $19,000 gift-tax annual exclusion gives no Medicaid protection; penalty months equal gifts divided by the state’s private-pay divisor.
  5. If a gift inside the window causes a penalty, returning the assets removes it, and every state must offer an undue-hardship waiver; ask the state Medicaid agency for its process before paying for litigation.

MaterialsRecords of gifts or property transfers made in the past five years, such as deeds and bank statementsYour state Medicaid agency’s current penalty divisor (the monthly figure it uses to calculate penalties) and the date it took effectA calendar or timeline to mark transfer dates against a possible application date

Wonder

  1. Why can a gift to a child lead to a penalty when care is needed later?
  2. How exactly is the number of ineligible months calculated?
  3. Which family transfers are exempt from the penalty?

Explore

  1. In the United States, when a person applies for Medicaid to pay for nursing-home care or certain home and community-based services, the state looks at assets transferred for less than fair market value, such as gifts. Under 42 U.S.C. §1396p(c)(1)(B), as changed by the Deficit Reduction Act of 2005, the look-back period is 60 months for transfers made on or after 8 February 2006. For someone in a nursing home, the 60 months are counted back from the first date the person is both in an institution and has applied for Medicaid.
  2. A transfer inside the window does not end eligibility for good; it creates a penalty period. For a person in a nursing home, the number of months equals the total uncompensated value of all transfers in the look-back period divided by the average monthly cost to a private patient of nursing-home care in the state (or, at the state’s option, in the local community) at the time of application. Each state sets and updates this divisor itself, so it differs from state to state and year to year. States may not round down or ignore part of a month.
  3. A simple example with made-up numbers, not any state’s real figure: if gifts in the window total $60,000 and the divisor were $10,000, the penalty would be 6 months; with gifts of $65,000 it would be 6.5 months. During the penalty, Medicaid does not pay for the long-term care services the rule covers, so the family usually has to pay privately. Working out a real penalty needs the divisor the state is using at the time of application, which the state Medicaid agency or an elder-law attorney can confirm.
  4. Timing changed in 2006. Before the Deficit Reduction Act, a penalty generally began in the month of the transfer, so it could run out before care was ever needed. For transfers on or after 8 February 2006, it begins on the later of the first day of a month during or after the transfer, or the date the person is otherwise eligible for Medicaid and would be receiving institutional-level care based on an approved application, but for the penalty. In practice, the penalty usually starts just when care is needed and savings are low.
  5. Some transfers are exempt under §1396p(c)(2). Any asset may go to a spouse (or another person for the spouse’s sole benefit), to a blind or disabled child (or a trust solely for that child), or to a trust solely for any disabled person under 65. The home can also go to a child under 21; to a sibling with an equity interest who lived there at least a year before the person entered an institution; or to a son or daughter who lived there at least two years before then and gave care that kept the parent at home.
  6. Other relief is narrow: there is no penalty to the extent the person shows the transfer was meant to be for fair value or was made only for another purpose, or that the assets were returned, and states must have an undue-hardship waiver process. A common surprise is that gifts within the federal annual gift-tax exclusion ($19,000 per recipient in 2026) are not exempt from Medicaid’s look-back. Evidence rules vary by state, so families typically involve an elder-law attorney or benefits counsellor before a large transfer. This lesson describes the rules; it does not recommend any transfer.

Key facts

  • Under 42 U.S.C. §1396p(c)(1)(B), the look-back is 60 months for transfers made on or after 8 February 2006 (Deficit Reduction Act of 2005).
  • Penalty months = total uncompensated value transferred ÷ the state’s average monthly private-pay nursing-home cost at the time of application; each state sets its own divisor.
  • States may not round down or disregard a partial month of penalty.
  • For transfers since 8 February 2006, the penalty starts on the later of the month of transfer or the date the person would otherwise be eligible and receiving institutional-level care.
  • Under §1396p(c)(2)(B), transfers to a spouse, to a blind or disabled child (or a trust solely for them), or to a trust solely for a disabled person under 65 are exempt.
  • Under §1396p(c)(2)(A), the home may also go without penalty to a child under 21, a qualifying sibling with an equity interest, or a caregiver child who lived there at least two years.

Exercise nine, six, three, one

9CollectList up to 9 gifts or transfers made in the past five years or being considered (some families have fewer), noting the approximate date, value and who received each.
6ClusterSort them into 6 categories: to a spouse, to a blind or disabled child, the home to a qualifying relative, into a trust, sales at fair value, and all other gifts.
3DistillReduce the 6 categories to 3 groups: transfers that appear to fall within a federal exemption, transfers that may count toward a penalty, and transfers to ask an elder-law attorney or benefits counsellor about.
1CrystallizeWrite 1 sentence explaining, in your own words, why a gift made four years before applying is treated differently from one made six years before.

Fact check

Dates, figures and claims checked against the published sources listed below.

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