Medicaid: Skilled Nursing Home Care vs. Annual Gift Exclusion

I regularly talk to clients who are 60 years old and above about how they plan to pay for skilled nursing care if it becomes unavoidable. At this point, many clients explain to me their creative ideas about avoiding skilled care altogether. But all jokes aside, I then draw them back into a conversation about applying for Medicaid benefits if they cannot afford care. The major part of this conversation is an explanation of how someone who makes gifts within 5 years of needing care could be penalized before benefits are made available.

Many people are already aware of the five year look back period that the Medicaid program imposes. But, very often, clients are confused when I bring this up because they thought it was okay to gift up to a certain amount each year. They are referring to the annual gift exclusion of the Internal Revenue Code, which is $14,000 for 2015. This exclusion allows a tax-free gift of no more than $14,000 per person. For example, a husband could gift $14,000 to each child and his wife could also gift $14,000 to each child without any tax implications.

While this exclusion is nice, Medicaid has a separate set of rules that requires an applicant to report all gifts within five years of applying for benefits. While a person may have made tax free gifts they may have to pay a penalty for making such gifts before becoming Medicaid eligible. After clearing up this confusion with my clients, I make sure they understand the detailed rules of Medicaid eligibility pertaining to gifts. With these rules in mind we can make a plan to avoid complications when benefits might be needed the most.

There are detailed rules about divestment and gifting under the Medicaid program. Please consult an attorney familiar with these rules to learn more.

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