Common Misconceptions: Can I Give Away $15,000 Per Year Without a Medicaid Transfer Penalty?

This edition of the Koldin Report E-Newsletter continues a series on common misconceptions about Elder Law, Estate Planning and Medicaid.

In this newsletter we discuss misconceptions about the annual $15,000 tax free gift. All prior newsletters are saved on our website. You can read them by clicking here.

Incorrect: $15,000 (originally $10,000, now indexed for inflation) per person per year may be gifted without any penalty being imposed by Medicaid.

Correct: This $15,000 per person per year figure is the current amount that can be gifted without having to file a gift tax return. This rule relates to tax planning and not Medicaid planning. This common misconception can cause people to gift great amounts of money and cause a period of ineligibility for Medicaid coverage.

The next logical question is if there are Medicaid penalties for making transfers, does that mean you can no longer make gifts?

Under the Medicaid law, any gifts you make within 5 years prior to applying for Medicaid coverage for Nursing Home costs, are presumed to be for the purpose of depleting your life savings in order to qualify for Medicaid. In order to avoid the imposition of a transfer penalty period of ineligibility, you must prove that the transfer (gift) was made exclusively for a purpose other than to qualify for Medicaid.

Example: Grandma gives her grandson $5,000 to use towards purchasing a car. Two years later, Grandma has a stroke and permanently enters a nursing home. Will this gift by Grandma be penalized by Medicaid?

Since this $5,000 gift is under $15,000, there is no gift tax due, but that does not mean there is no Medicaid transfer penalty.

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 gift. However, in the above example, only 2 years passed from the date of the gift.

Since the grandmother made the gift within the 5 year lookback period, then in order to avoid the imposition of a transfer penalty by Medicaid, either the grandson must return the gift or the grandmother must prove that the gift was for a legitimate purpose and that Nursing Home care was not foreseeable based on her good health.

The best practice when preparing to apply for Medicaid is to carefully review 5 years of all financial statements and prepare explanations for all withdrawals and deposits that the Medicaid caseworker would be likely to question.

For a detailed discussion of the Medicaid rules, please visit our website. Click here.

When the Koldin Law Center, P.C. represents clients in the Medicaid application process, we carefully review the financial statements of our clients and discuss explanations and obtain proof and documentation to justify the purpose of the gifts to avoid transfer penalties.

At the Koldin Law Center, P.C., located in East Syracuse, New York, we have over 50 years of experience helping individuals plan for immediate crisis and long term care. Our attorneys are available to discuss your estate planning options. We do not charge a fee for the initial consultation. We welcome your children, family attorney, accountant, and/or financial planner to be present at the initial consultation.

There is something you can do.