Today is Giving Tuesday, a global day of generosity observed the Tuesday after Thanksgiving. Many older adults use the holiday season to give cash or valuable assets to family members or charities. While those gifts are usually appreciated, it’s important to be cautious about large transfers—especially if you might need Medicaid or live in a retirement community that applies a five-year lookback period to asset transfers.
Gifting to qualify for Medicaid
Some older adults transfer money or assets to loved ones to reduce the value of their estate when applying for Medicaid or other need-based government assistance programs that help pay for medical and long-term care. (Medicaid is distinct from Medicare, which provides health insurance to most people age 65 and older and to some people with severe disabilities regardless of income.)
In practice, Medicaid expects individuals to use their savings and assets to pay for long-term care costs before qualifying for benefits. Because of that, people sometimes seek legal strategies to protect a portion of their savings or assets—so those resources can help a spouse or children—while still meeting Medicaid eligibility rules.
The lookback period and calculating Medicaid qualification
Medicaid eligibility rules vary by state, since states contribute funds to the program and set some criteria. For working-age adults, eligibility often depends on modified adjusted gross income (MAGI). For people age 65 and older, eligibility is determined in part by countable assets and rules similar to Supplemental Security Income (SSI). Generally, when most assets are spent down, Medicaid can begin covering long-term care services.
Crucially, federal Medicaid rules include a five-year lookback period. If you give away certain assets within five years before applying for Medicaid, those transfers may trigger a transfer penalty that delays benefit eligibility for a specified period. Although federal tax rules for 2025 allow individuals to gift up to $19,000 (or $39,000 for a couple) annually without gift tax consequences, even modest gifts can affect Medicaid eligibility under the lookback rule.
Medicaid typically treats gifts and transfers the same whether they are to a charity or to family for holidays, birthdays, weddings, or graduations.
Ways around the lookback period
There are exceptions to the five-year lookback rule. Transfers that are permitted without penalty include transfers to a spouse and transfers to a child who is blind or permanently disabled. You can also establish a trust for a person under age 65 who is permanently disabled and transfer assets into it without penalty.
There are specific exceptions related to a primary residence as well:
- You can transfer the home to your spouse, a blind or disabled child, or into a trust for a permanently disabled person without penalty.
- You can transfer the home to a child under age 21, or to an adult child who lived in the home for at least two years as an unpaid caregiver, without incurring a penalty.
- You can transfer the home to a sibling who already has an equity interest and who lived in the home for at least a year before you moved to a nursing facility.
Other considerations for gifting your home
A primary residence is often treated as an exempt, non-countable asset up to a certain equity limit. Under recent rules, a primary residence with equity up to a designated cap in most states may be excluded when determining Medicaid eligibility, allowing individuals to keep the home while qualifying for nursing home care. The home is also automatically exempt if a non-applicant spouse continues to live there.
However, states can seek recovery from a deceased Medicaid recipient’s estate for the cost of benefits paid on their behalf, and recovery commonly comes from selling the home. If you plan to transfer your home, options include an irrevocable Medicaid asset protection trust, an outright deed, or a deed with life estate that permits you to continue living in the home. Each approach has advantages and drawbacks, and transfers can have tax consequences such as capital gains—so consult a real estate attorney and a tax professional before proceeding.
The lookback period and Medicaid asset protection trusts
An irrevocable Medicaid asset protection trust is another tool to shelter assets. Once assets are transferred into this type of trust, they generally cannot be removed. Transferable assets may include qualified retirement accounts, vehicles, personal property (jewelry, heirlooms, collectibles), and certain life insurance policies. You can also transfer a primary residence into such a trust, but transfers involving real estate are complex and should be handled with experienced counsel to avoid unintended consequences related to the five-year lookback.
Although establishing a Medicaid trust is legal, using it primarily to qualify for limited government resources rather than to address genuine financial need can raise ethical questions and may limit care options. Medicaid eligibility officers evaluate applications to ensure needs are legitimate rather than solely the result of planning designed to avoid paying for long-term care.
A plan that works for the long term
The holidays are a common time to gift assets and to discuss estate plans with family. But gifting—especially large gifts—interacts with complex Medicaid rules and the lookback period, so it’s important to understand the legal and financial implications before transferring money, property, or other valuables.
Before making significant gifts or transfers, consult an experienced financial planner, tax advisor, and estate or Medicaid planning attorney who can explain your state’s rules and help craft a plan that preserves assets while avoiding penalties or unintended consequences.
Originally posted December 24th, 2018; updated December 3, 2024