One of the better benefits of the federal tax code is that it allows you to give a specific amount as a gift to another person in a given year completely free of the gift tax.  On the surface, this option can seem to be desirable for a person who is aging and seeking to pass their cash estate to their loved ones.  However, if the person making the gift is also planning on utilizing Medicaid long-term care services, these generous gifts could be cause for concern.

As of this writing, the federal annual gift tax exclusion allows a person to make a gift of $15,000.00 to another person.  This gift can be made to an unlimited number of recipients.  No gift tax will be owed, and no gift tax return must be filed.  While this seems to be an ideal option for passing wealth to loved ones, there is a complication if you are trying to qualify for Medicaid to pay for your long-term care.

Medicaid automatically looks at financial transactions concerning your estate over the five-year-period before your application.  This review, sometimes known as the five-year look-back period, will consider any monetary gifts made during that period. Even though these $15,000.00 gifts are not subject to gift tax by the IRS, this does not exclude them from being considered by Medicaid.  The result may be that these transactions are considered a voluntary divestment of your estate, thereby subjecting you to a transfer penalty under the Medicaid rules.  This means the gift will have the effect of disqualifying you from Medicaid long-term care benefits for a specified period.  The calculation of how much time you will be disqualified is usually reached by dividing the cost of the transferred asset by the average costs of the care.  The net result being that in some cases, one $15,000.00 gift will costs the Medicaid applicant almost two months of care. While it may seem that this short a period of ineligibility is not significant when a person needs long-term care it is ordinarily an immediate need.  Further, the more the person gave to loved ones, the more time it can take for them to qualify for these often critical Medicaid services.

This conflict between non-taxable gifts and Medicaid requirements does not prohibit all gifts.  When gifts are devised and transferred correctly, it is possible to achieve the twin goals of sharing your estate with your loved ones and ensuring you are qualified for Medicare. Glenn Matecun is one of 19 Certified Elder Law Attorneys* in the entire State of Michigan.  Our office can help you examine your gift-giving options and prepare for qualifying for Medicaid.  Please contact us if we may be of assistance.  *Certified as an Elder Law Attorney by the National Elder Law Foundation.

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