Time and again clients come to us with the misconceptions about gifting – “My (type in any of the following – CPA, financial advisor, friend, neighbor) told us that we could gift up to $19k a year to our kids or grandchildren. Why can’t I gift all my money then qualify for Medicaid – it’s the same thing right?
Unfortunately, this is not so easy. The reason why there is a a 5-year lookback on gifts is specifically because the government does not want people to think they can gift away their money and immediately qualify for Medicaid. After all, Medicaid is a needs-based program designed to assist the impoverished when dealing with the devastating costs of long term health care. The Managed Long Term Care Support and Services under the ABD program is specifically meant for those individuals deemed “clinically” eligible for Medicaid and have no way to pay for it. However, those individuals who worked hard to build a small nest egg to pass down to their children are heartbroken to know that their house/retirement account or some other savings that they had squirreled away for their kids may no longer be protected from the rising costs of healthcare. For these people, if they gift without consulting an specialized elder law attorney they may inadvertently make improper gifts thinking it was okay. However, it’s important to keep in mind that the IRS rules do not apply to the world of Medicaid and vice versa. These are 2 different agencies who have different goals and objectives. The IRS deals with income, gift and estate taxation – their rules are clear –, if you gift $19k each year, you don’t even have to report it to the IRS so long as you only make 1 gift per person per year. This may be a way to bring down your estate value to avoid this harsh 40% estate tax; however, in the Medicaid world, if you submit an application for Medicaid, gifts as little as $1k or more made within 5 years of the date of the application will be added together and a penalty will be assessed based on a certain formula disqualifying you from getting Medicaid until the penalty period is over. You could have the gift returned to the applicant so the penalty gets removed, but in NJ, if you have made gifts to several people, then all gifts must be returned to erase the penalty.
So, our suggestion – the next time you hear anyone speak to you about gifting please contact a specialized estate planning attorney to help you navigate through how, when and what gifts to make so as to not jeopardize your entire plan. . At RLG, we are certified estate planning attorneys, and our goal is to guide you through the process on how to gift and when. Contact us if you have more questions.