Loans are exempt from Medicaid five-year look back regulations

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Paul A. Brule

Legal Corner by Paul A. Brule

There are techniques available that the experienced practitioner can utilize to help achieve a client’s goals.

Every month we share different techniques that we use to save assets from loss for payment of nursing home expenses. Those techniques allow clients to qualify for Medicaid payment for nursing home expenses while saving some portion of their assets. As we often say, it is never too late to save assets under such circumstances.

Many of our clients come to us already knowledgeable of what is referred to as the five-year look back rule. In short, the rule requires disclosure of any gifts made during the period of time five years prior to making the application for Medicaid assistance for payment of nursing home expenses. Of course, there are exceptions and other facets of the rule that can be addressed at a later time. This month, I am reviewing a type of transaction that is not subject to the five-year look back rule.

Even to people that are not lawyers, the difference between gifts and loans is quite obvious. Loans have to be paid back. Gifts do not.

Needless to say, there are extensive Medicaid rules regarding loans. However, just as with gifts, there are exceptions, and there are other techniques that are available that the experienced practitioner can utilize to help achieve a client’s goals. The purpose of this column is not to make you an expert in those differences, but to alert you to the fact that there are differences and that those differences can sometimes be put to good use in attempting to achieve your goals.

We utilize loan techniques in many of our client cases. One example is when we have a healthy spouse living at home and the other spouse in need of institutionalization. While not a necessary component in all such cases, that is the type of case in which we will use a “spousal note.” Essentially, it is a loan from the ill spouse, often times made to a child, with provisions for repayment to the healthy spouse.

A second example is in the case of a single person, whether a widow or a widower, or someone never married or now divorced. Obviously, a spousal note is not feasible when there is no longer a spouse, however, a different technique, combining a calculated loan amount with a calculated gift amount can achieve surprising results for many clients.

Loans are just one example of a financial transaction that is not a gift and is not subject to the look back rules. Another example would be inheritances. Again, depending on very particular circumstances, planned or unplanned, inheritances can be very helpful or very damaging in the case of a Medicaid application.

Understandably, the look back rule is all quite complicated. One could say that is the whole point of this column. When we meet clients who tell us that everyone told them it was too late to do anything, our first question is always, “Did you check with an attorney who is experienced in this area of the law?”Unfortunately, they frequently answer they did not. So, even if we have only been able to give you a small sample of the degree of complexity in such matters, it is a lesson well learned. Don’t assume that your friends know all the answers. Get professional assistance.

Paul A. Brule is an attorney with the firm of Walsh, Brule & Nault, P.C., in Cumberland. He can be reached at (401) 334-4545.

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