Please note: Medicaid rules are complex and subject to change. The information in this article is for general educational purposes and should not be considered legal advice. Every Medicaid situation is different, and you should consult with a qualified Wisconsin elder law attorney regarding your specific circumstances.
Planning for the possibility of long-term care is best done well before care is needed. Advance planning provides more options because assets can potentially be transferred and the “five-year look back” period can run before a person needs Medicaid.
However, life does not always allow for advance planning. A sudden illness, injury, or need for nursing home care can leave a family wondering how they will pay for care without spending everything they have saved. Fortunately, Medicaid crisis planning may provide strategies for preserving assets even when long-term care is needed immediately.
What Is Medicaid Crisis Planning?
Medicaid crisis planning is used when an individual needs long-term care and may eventually need Medicaid to help pay for that care. An attorney can review their assets to determine the best ways to use available funds.
Depending on the circumstances, funds may be:
- Used to pay for the individual’s long-term care;
- Used to purchase or improve an asset that is excluded from Medicaid’s asset calculation;
- Converted into an income stream that is not treated as an available asset, although the income may affect Medicaid eligibility; or
- Used in another planning strategy permitted under Medicaid rules.
The goal is not simply to spend money. It is to determine how each dollar can be used most effectively while considering the individual’s care needs, Medicaid eligibility, spouse, family, and long-term financial goals. Because an inappropriate transfer can result in a Medicaid penalty period, crisis planning should be approached carefully and with the assistance of an experienced elder law attorney.
What Is a Medicaid Divestment?
A divestment generally occurs when assets or income are transferred for less than fair market value. A divestment made during Medicaid’s lookback period can result in a period of ineligibility for Medicaid long-term care benefits. This is commonly referred to as a Medicaid penalty period.
What is a divestment? In everyday terms, this can include outright gifting or giving money or property to someone without receiving equivalent value in return. For example, if you give your grandson $10,000 for his wedding, that is a divestment. If you sell your car to your grandson for $1,000 when it is worth $20,000, that is a divestment. If you sell your house and give your kids the proceeds from the sale, that is a divestment. Giving money to a child shortly before applying for Medicaid can create significant problems. The fact that the gift was made with good intentions or that it was done within the IRS guidelines does not necessarily prevent it from being treated as a divestment.
However, not every transfer is treated as a divestment. Certain transfers may be permitted under Medicaid rules. There are also specific circumstances in which a transfer may qualify for an exception or exclusion from the divestment rules.
It is important to note that the federal annual gift tax exclusion is not a Medicaid divestment exception. A gift that avoids a federal gift tax liability can still result in a Medicaid penalty.
What Is the Medicaid Penalty Period?
The Medicaid penalty period is the period during which an individual is ineligible for Medicaid long-term care benefits because of a disqualifying transfer.
Generally, divestments made during the applicable lookback period are added together to determine the total amount of uncompensated transfers. That total is then divided by the applicable Medicaid divisor to calculate the length of the penalty period. The divisor is based on the current daily rate of nursing home care in Wisconsin, which is $352.06 in 2026.
For example, using the current Wisconsin divisor of $352.06 per day, if you gifted a total of $35,206, that would result in a penalty period of 100 days. That means that while you might otherwise be eligible for Medicaid, you will not receive any Medicaid benefits for those 100 days of penalty.
The actual calculation in a particular case can be more complicated. Medicaid rules and the applicable divisor can change every year.
When Does the Penalty Period Begin?
An especially important aspect of Medicaid planning is understandingwhen the penalty period starts. Generally, the penalty period does not simply begin on the date a gift was made. Rather, it begins when the individual would otherwise be eligible for Medicaid long-term care benefits but for the transfer penalty. This generally requires the individual to have applied for Medicaid and met the other eligibility requirements.
This means that making a gift and waiting out the resulting penalty period does not necessarily work as a Medicaid planning strategy. In some circumstances, failing to apply for Medicaid can mean that a penalty period has not yet been triggered. This makes the timing of a Medicaid application an important part of crisis planning.
What Is the Medicaid Lookback Period?
The Medicaid lookback period is the period of time before a Medicaid application during which Medicaid reviews transfers of assets to determine whether uncompensated transfers occurred. For long-term care Medicaid, the lookback period is generally 60 months, or five years.
Medicaid reviews transfers made during this period to determine whether assets were given away or otherwise transferred for less than fair market value. If disqualifying transfers occurred, they may be combined to determine a Medicaid penalty period.
Transfers made by a community spouse can also raise divestment issues when they occur within five years after the institutionalized spouse became eligible for long-term care Medicaid.
Does This Mean You Should Never Give Assets Away?
Not necessarily. Medicaid planning is not simply a matter of avoiding gifts. The important question is whether a particular transfer is permitted under Medicaid rules and, if it is not, whether the potential benefit of the transfer outweighs the resulting penalty.
For someone who has not planned in advance, there may still be legitimate planning opportunities. The appropriate strategy depends on numerous factors, including the individual’s assets, income, marital status, health, expected care needs, family circumstances, and the type of property involved.
The key is to avoid making transfers or large financial decisions without first understanding the Medicaid consequences. A transaction that appears financially beneficial could inadvertently create a significant period of Medicaid ineligibility.
What to do Next?
Needing nursing home care does not necessarily mean that an individual or married couple must spend every dollar of their savings before Medicaid can help pay for care. Even when there has been little or no advance planning, there may be strategies available to preserve assets while complying with Medicaid’s complicated eligibility rules.
The goal of crisis planning is to make the best use of the assets available, rather than simply spending them down as quickly as possible.
If you or a loved one is facing the possibility of nursing home care and Medicaid may be needed to help pay for that care, an experienced Wisconsin elder law attorney can review your circumstances, explain the available options, and help determine the most appropriate strategy for your family.
608.237.6673