Can I Make Gifts to My Family?

If you have it to give, you certainly can, but there may be consequences that you must take into consideration when doing so. Persons who are elderly, and who may need long-term care, need to take into account not only the tax consequences, but the consequences that such gifts may have on their eligibility for Medicaid and Veterans benefits for instance.

Many people believe that the amount they can give to a person each year is $10,000. That amount has actually raised to $14,000 as of 2015. The $14,000 figure is the amount of the current gift tax exclusion (for 2014 and 2015), meaning that any person who gives away $14,000 or less to any one individual does not have to report the gift to the IRS, and you can give this amount to as many people as you like. If you give away more than $14,000 to any one person (other than your spouse), you will have to file a gift tax return. However, this does not necessarily mean you’ll pay a gift tax. You’ll have to pay a tax only if your reportable gifts (exceeding those annual excluded gift) total more than $5.43 million (2015 figure) during your lifetime.

However, many people believe that if they give away an amount equal to the current $14,000 annual gift tax exclusion, this gift will be exempted from Medicaid’s five-year look-back at transfers that could trigger a waiting period for benefits. Nothing could be further from the truth.

The gift tax exclusion is an IRS rule, and this IRS rule has nothing to do with Medicaid’s asset transfer rules. While the $14,000 that you gave to your grandchild this year will be exempt from any gift tax, Medicaid will still count it as a transfer that could make you ineligible for nursing home benefits for a certain amount of time should you apply for them within the next five years. That same tax free gift creates about a two-month penalty under Michigan’s Medicaid’s rules. You may be able to argue that the gift was not made to qualify you for Medicaid, but proving that is an uphill battle.

There is Veteran’s pension program designed to help wartime veterans and their surviving spouse’s cover the cost associated with long-term care. That program can provide up to over $2,000 a month in extra income for eligible persons. However, that program has an net worth eligibility test.

Currently, the VA does not impose a penalty for gifting away assets prior to applying for that program. However, the VA may soon implement a three-year look back period, similar to the five-year look back imposed by Medicaid. If those changes are implemented, Veterans (and their surviving spouses) must also take into account the impact that making gifts could have on their eligibility for that helpful program.

If you think there is a chance you will need to seek Medicaid of Veteran’s benefits coverage to help with long-term care in the foreseeable future, see your elder law attorney before starting a gifting plan.