Gifting Assets Can Create Five-Year Lookback Period Issues

Today is Giving Tuesday, a global movement celebrating generosity, observed on the Tuesday following Thanksgiving. Many older adults use the holiday season as an opportunity to give away some of their cash or other valuable assets to loved ones or charitable causes. And while these gifts are no-doubt appreciated by their recipients, there are reasons to be cautious about how much you give away, particularly if you need to take into account the five-year lookback period of a retirement community and/or Medicaid.

Gifting to qualify for Medicaid

Some older adults opt to give away money or assets to their loved ones as a way to eliminate their value from the calculation used to determine eligibility for Medicaid or other government assistance programs that help pay for the medical or long-term care needs of low-income Americans. (Note: Medicaid is different from Medicare, which is a health insurance program available for all people who are over age 65, as well as people with a severe disability, regardless of their income.)

In short, if an older adult has money put aside in savings or has other valuable assets, they are expected to use those funds to pay for their own long-term care costs. Only if those savings and assets are exhausted will they potentially become Medicaid-eligible. This is why some older adults look for ways to protect at least some portion of their cash savings and other assets — often so they can be used to support their spouse or their children — while still managing to qualify for Medicaid.

The lookback period and calculating Medicaid qualification

The criteria to qualify for Medicaid vary by state, since some of the funds that support the Medicaid program come from the state level, but in general for those under age 65, it is based on a formula that includes a person’s modified adjusted gross income (MAGI).

For people age 65 and over, Medicaid eligibility is determined in part by the person’s assets as well as the rules for Supplemental Security Income (SSI), which is funded by general tax dollars, not from the Social Security taxes withheld from a person’s paycheck. In the simplest terms, once most of your assets are depleted, Medicaid will kick in to pay for your long-term care services (such as care in your home or in an assisted living community or nursing home).

But there’s a caveat that is crucial to understand. Under federal laws for Medicaid, if you give away certain assets within a five-year “lookback period” before you apply for Medicaid, you may be hit with what’s called a “transfer penalty,” which renders you ineligible for Medicaid benefits for a designated period of time. While federal tax laws for 2025 allow an individual to gift up to $19,000 (or $39,000 for a couple) a year to another person without having to pay a gift tax, even small gifts/transfers can impact your Medicaid eligibility when it comes to the lookback period.

Also, it’s important to know that Medicaid treats pretty much all gifts/transfers equally in determining your eligibility, regardless of whether the gift was to a charity or to a loved one for the holidays, a birthday, a wedding, a graduation, etc.

Ways around the lookback period

Now, there are a handful of exceptions to Medicaid’s rules about giving away assets during the five-year lookback period, even if you are already living in a residential long-term care setting. For example, you can transfer money or other assets to your spouse without it receiving scrutiny or causing you to incur an eligibility penalty. Similarly, you can give assets away penalty-free to a child who is blind or otherwise permanently disabled. You also can create a trust to give your assets to anyone under age 65 who is permanently disabled.

There are some additional exceptions to the lookback period for those who want to gift their home, which is often a person’s most valuable asset.

You can transfer it to your spouse, a blind/disabled child, or a trust for any permanently disabled person, as above.
You also can give your home to a child who is either under age 21 or any adult-child who has lived in your home with you for at least two years serving in an unpaid family caregiver role for you, which allowed you to remain in the home prior to moving to a long-term care residence.
Additionally, you can gift your home to a sibling who already has an equity interest in the home and who also lived there for at least a year before you moved to a nursing home.

Other considerations for gifting your home

There’s another important fact to consider when pondering giving away your home. According to the 2025 rules around Medicaid eligibility, a primary residence with up to $730,000 of equity in most states (or up to $$1,097,000 in certain states that elected for an increased value under federal law) is designated as an exempt “non-countable” asset, which means it is possible to keep your home (versus gifting it as described above) yet still qualify for government-financed nursing home care under the Medicaid program. The home is also automatically exempt if a non-applicant spouse still lives in it.

But as with most things that sound too good to be true, there is a hitch to this non-countable asset designation for the home: When the Medicaid recipient passes away, the state has the right to recover the amount paid for nursing care from the deceased person’s estate, which typically comes from the sale of their home.

If you decide that you do want to transfer your home or other Medicaid-exempt asset to a loved one, there are several different ways to do it, such as an irrevocable Medicaid asset protection trust (more on this in a moment), outright deed, or a deed with life estate, which would allow you to continue to live in the house. There are pros and cons to each of these property transfer approaches, so be sure to consult with a real estate attorney and tax attorney (since capital gains taxes may result from the eventual sale) to determine which option is the best for your unique situation.

>> Related: The High Price of Family Caregiving

The lookback period and Medicaid asset protection trusts

A Medicaid asset protection trust is another option for protecting some of your assets when determining Medicaid eligibility. This is an irrevocable trust, meaning once you create it and transfer assets into the trust, you cannot remove those assets. The types of assets that can be transferred into a Medicaid asset protection trust include:

Qualified retirement accounts, such as a 401(k) or IRA
Vehicles
Personal property, including jewelry, heirlooms, and other valuables
Certain life insurance policies

You can also transfer your primary residence, or your spouse’s primary residence, into a Medicaid trust. However, transferring a home can be complex, especially if the property has significant value or equity. It’s a good idea to consult with an estate planning or Medicaid planning attorney to ensure the transfer is done correctly and will not cause issues with the five-year lookback period.

While legal, setting up a Medicaid trust primarily to take advantage of already limited government resources (rather than using your own funds to pay for care) is seen by many as ethically questionable. Additionally, this retirement planning approach could restrict your options when choosing care facilities. Medicaid eligibility officers would likely argue that Medicaid qualification should result from legitimate financial needs, not solely as a strategy to avoid paying for your own long-term care.

A plan that works for the long-term

The holidays are not only a nice time to gift a portion of your estate to a loved one, they also can be a good time to discuss your estate planning approach with them; it’s an important conversation to have.

As you can see, there are numerous complexities and considerations when thinking of how you will give assets away as well as determining how you will pay for long-term care if and when you need it.

And it’s important to understand the laws around gifts of money, real estate, or other valuables so that you and your loved ones don’t pay for that gift down the road. That’s why, before giving away a large amount of money or a valuable asset, we always advise people to consult with the experts: an experienced financial planner, accountant, and/or estate attorney who understands Medicaid regulations and the lookback period.

Originally posted December 24th, 2018; updated December 3, 2024

FREE Detailed Profile Reports on CCRCs/Life Plan Communities
Search Communities