By Nancy Burner, ESQ.
Gifting and Medicaid planning is commonly misunderstood. We often see clients who believe that the gifting rules for Medicaid are the same as the IRS gifting regulations.
The IRS allows a person to give up to $15,000 per person annually without penalty. Under the code, all gifts made in any given year are subject to a gift tax. However, the first $15,000 gifted to each individual in any given year is exempted from the gift tax, and for that reason, for many individuals, gifting during their lifetime is a way to distribute wealth and reduce their taxable estate at death. Medicaid is not the same.
Oftentimes, seniors and their children believe that this same exemption holds true for Medicaid eligibility, and that gifting this amount of money away annually will not affect them should they need to apply for Medicaid benefits in the future.
Medicaid requires that all Medicaid applicants account for all gifts and transfers made in the five years prior to applying for Institutional Medicaid. These gifts are totaled, and for each approximately $13,053 that was gifted, one month of Medicaid ineligibility is imposed. It is also important to note that the ineligibility begins to run on the day that the applicant enters the nursing home rather than on the day that the gift was made.
For example, if someone has approximately $180,000 in his or her name and gift annually $15,000 to each of four children, the $180,000 would be gone in approximately three years. Under the IRS code, no gift tax return would need to be filed and no tax would be owed. If at the end of those three years the individual then needed Medicaid, those gifts would be considered transfers “not for value” and would have made him or her ineligible for Medicaid benefits for approximately 13 months.
In other words, the individual would need to privately pay for the nursing home care for the first 13 months before Medicaid would kick in and contribute to the cost of care.
The amount the individual would pay on a monthly basis would depend on the private monthly cost of care at the nursing facility. If the nursing facility costs $17,000 per month, the individual would need to pay that amount for 13 months totaling approximately $221,000.
What makes this even more difficult for some families is that an inability to give the money back or help mom or dad pay for her or his care is not taken into consideration, causing many families great hardship. It is important for families who have done this sort of gifting to know that there are still options available to them.
An elder law attorney who concentrates his or her practice on Medicaid and estate planning can help you to optimize your chances of qualifying for Medicaid while still preserving the greatest amount of assets.
Nancy Burner, Esq. practices elder law and estate planning from her East Setauket office.