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The sooner you begin Medicaid planning, the better the protection

Too many people don't think about whether they will need Medicaid until they are actually in the situation where they have to apply for Medicaid's income-based medical benefits. This lack of preparation likely reflects the fact that many people don't realize that the government won't just look at their current income but also at their financial history when reviewing an application for Medicaid benefits.

In other words, if you wait to apply for Medicaid until you desperately need those benefits, you might find yourself denied the benefits you need until you have paid a substantial penalty. Understanding how Medicaid reviews your finances and how they assess that penalty can underscore how important early Medicaid planning is for those who will likely need those benefits later in life.

The government will scrutinize five years of finances

In order to qualify for Medicaid benefits, your income and total assets must be below a specific limit. The review of your application won't involve just your current income but also your income in recent years and the distribution of any assets from your household in recent years.

The so-called federal look-back period for Medicaid is a full five years or 60 months. If you wait until you need the more comprehensive coverage that Medicaid provides to start planning, you will likely have to deal with a penalty before you can get any Medicaid benefits.

How does the Medicaid penalty system work?

If a review of your last five years of financial transactions makes it clear that you have transferred assets or given substantial gifts to others, you will likely need to pay an equivalent amount to the value of those assets out of pocket before Medicaid will start to cover anything.

Despite the fact that you likely don't have those assets or the income to cover their cost at this point, that will likely be the penalty you face at the time of your application. The sooner you reduce the value of your estate by making gifts to family members or transferring funds and assets like your home into a trust, the greater the protection you will have and the less likely it becomes that you will have to pay a penalty before you receive your benefits.

Medicaid planning is an important process for those who worry about the financial consequences of aging and that they may need nursing home or other significant care later in life.

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