“I want to give some money to my child – is that okay to do?” I often hear this question from elderly clients who visit me for the purpose of long-term care planning. The short answer is that you are free to gift a certain amount to your adult children without filing gift tax returns but it may adversely impact your eligibility to receive Medicaid benefits to pay for long-term care in a nursing home later.
Let’s say you are contemplating giving $16,000 to your child. From a tax perspective, an individual is permitted to give up to $16,000 to a recipient each year without filing a federal gift tax return. This is the annual gift tax exclusion amount as of 2022. Annual exclusion gifts may be made to multiple recipients. For example, you may give $16,000 to each of your children Alex, Ben and Cathy during 2022. If you are married, each spouse may give $16,000 to each child, meaning that Alex, Ben and Cathy may each receive $32,000, allowing you to gift $96,000 in 2022 without filing federal gift tax returns.
However, gifting almost $100,000 to your children in 2022 will be problematic should you require Medicaid to pay for your long-term care in a nursing home within the five-year period following the gifts. Medicaid is a joint federal/state government benefits program that requires specific medical and financial criteria are met before someone is eligible for Medicaid benefits to pay for long-term care nursing home costs. Upon application for such benefits, MassHealth (the agency that administers the Medicaid program in Massachusetts) will require an applicant to provide detailed financial information going back five years. This includes disclosing any gifts made during that period. If you made gifts during the so-called five-year look-back period, Medicaid considers the gifts to be disqualifying transfers. The reasoning is that if you had retained the money you gifted to your children, you would have been able to pay for the nursing home expenses out of your own pocket instead of Medicaid paying for you.
If Medicaid determines the gifts are disqualifying transfers, the recipients must return the gifted money to you to “cure” the transfer so you can pay the nursing home costs out of pocket until you are financially eligible for Medicaid again. If the money is not returned, the person who made the gift will be ineligible for benefits for some period of time. The period of ineligibility is calculated by dividing the amount of the gift by the average daily cost of a nursing home as determined by the state (currently $410). For example, that $16,000 gift to your child would result in around 39 days of ineligibility for Medicaid benefits. The real kicker is that the 39 days of ineligibility does not begin until the applicant “would otherwise have been eligible”. That means the disqualification period for making a gift begins to run after the applicant has run out of money. This trap for the unwary applies not only to gifts of money but also to gifts of other assets, such as real estate.
Making gifts of your assets to your children while also planning for a future in which you may require long-term care in a nursing home requires careful navigation. At Samuel, Sayward and Baler LLC, an attorney experienced in long-term care planning can assist you with avoiding such traps so that you and your children have peace of mind in case long-term care is necessary.
Attorney Abigail V. Poole is an associate attorney with the Dedham firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of trust and estate planning, estate settlement and elder law matters. She is an active member and current President Elect of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (NAELA). This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit ssbllc.com or call 781/461-1020.
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