How Medicaid Treats Gifts

March 7, 2012

This edition of the Koldin Report E-Newsletter reviews how Medicaid treats gifts.

A common question that we are often asked by clients is whether making $13,000 annual gifts is allowable by Medicaid.

The answer is "NO." The $13,000 figure that everyone hears about is for gift tax purposes. You can gift $13,000 to another person without having to file a gift tax return. This $13,000 gift tax exemption is NOT a Medicaid transfer exemption.

Under the Medicaid law, any gifts, including $13,000 tax free gifts, that you make within 5 years prior to applying for Medicaid coverage of Nursing Home costs, are presumed to be for the purpose of depleting your life savings in order to qualify for Medicaid and could make you ineligible for Medicaid benefits for a period of time.

The next question we are often asked by grandparents is whether they can continue to make gifts to their grandchildren that they have enjoyed making for many years.

For example, suppose that a grandmother made a $1,000 Christmas gift to each of her 7 grandchildren for a total of $7,000 and 4 years later she entered a Nursing Home. Do the grandchildren now have to return the gifts because the gifts were made during the 5 year lookback period?

If the grandmother did not need Nursing Home care until more than 5 years passed from the date of the gifts, Medicaid would not be able to penalize the gifts.

If the gifts were made within the 5 year lookback period, then in order to avoid the imposition of a transfer penalty by Medicaid, either the gifts would have to be returned or the grandparent must prove that the gifts were for a legitimate purpose and that Nursing Home care was not foreseeable based on her good health.

The Koldin Law Center, P.C. has successfully handled numerous Fair Hearings to challenge Medicaid transfer penalties by proving that gifts made by Medicaid applicants were for legitimate purposes while the applicants were still in reasonably good health.

There is always a risk when making gifts. The recipient of gifts needs to be advised that there is a possibility that gifts may need to be returned if 5 years has not elapsed from the date of the gift before the need to apply for Medicaid arises.

The decision whether to make a gift involves carefully assessing your health, the reason for the gift, prior gift-giving patterns and what proportion of your life savings is being depleted by the gift.

The Koldin Law Center, P.C. is available to its clients to review gift giving options along with other Estate Planning options such as the creation of an Irrevocable Family Trust to protect assets in the event long term care becomes necessary. There is something you can do.