The Intersection of Gifting and Medicaid Eligibility
I often hear clients say “I am allowed to gift up to [currently} $15,000 per year, per person without having to pay gift tax”.
That is true, but it’s better than that. No gift tax is due at all unless a total of more than $11,180,000 is given away in a lifetime. This current limit is combined with the Federal estate tax limit. If for example, someone gives a gift of $5,000,000, then the amount of his or her estate at death that escapes Federal estate tax is not $11,180,000, but “only” the difference of $6,180,000. So, effectively, most people do not have to pay gift tax.
This is in addition to the $15,000 that is allowed to be gifted to an unlimited number of persons each year without having to report the gifts. The only difference is that if more than $15,000 is given to any one person in any one year, an informational gift tax return must be filed, so that the IRS can keep track.
New York State does not have a gift tax.
However, these laws only deal with taxes; they should not be confused with Medicaid eligibility.
If you seek to become eligible for Medicaid coverage in a nursing home, you must provide copies of all of your and your spouse’s financial records for the immediate prior five-year period. If either of you gave gifts during that period, it will be assumed that you did so with the intention of becoming eligible for Medicaid and you will be assessed a “penalty” (a period of ineligibility for coverage). That period will begin when you enter the nursing home and apply for Medicaid.
It is possible, but usually difficult, to prove that gifts were made exclusively for some other purpose. Small gifts for birthdays, etc., might be disregarded if a historic pattern of such gifting can be shown. Otherwise, a penalty period will be assessed based on the total value of gifts made – the greater that value, the longer the penalty period.
During the penalty period, the nursing home bill would have to be paid privately, unless the applicant has long-term care insurance that covers the cost. However, a penalty period will be eliminated or reduced if the gift is given back in full or in part. Of course, getting the gift recipients to return the gift can be difficult, or impossible if the money has been spent.
Understanding the results of gift-giving is important. Sometimes a safer method is gifting through an irrevocable trust. If properly written, such a trust can provide flexibility in case a nursing home Medicaid application is needed in the future.
Copyright 2018 Joseph A. Bollhofer, Esq.
Editor’s Note: Joseph A. Bollhofer is an attorney who has been practicing law since 1985 in the areas of elder law, Medicaid, estate and business planning and administration, and real estate. He is also the president of Downstate Title Agency, Inc. His legal advice has appeared several times in Newsday’s “Ask the Expert” column, a weekly feature dedicated to elder law and estate planning issues. He is a member of the National Academy of Elder Law Attorneys, and of the Elder Law and Surrogate’s Court Committees of the Suffolk County Bar Association, currently serves as chair of the SCBA’s Real Property Law Committee, and is a member of the Elder Law, Trusts & Estates Law and Real Property Law Sections of the New York State Bar Association. He can be reached at firstname.lastname@example.org or 631-584-0100.