“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: Yes, you are free to gift a certain amount to your adult children without filing a gift tax return. But here’s the catch – what seems like a generous gesture today could create serious issues down the line if you ever need Medicaid to help pay for nursing home care.
Let’s break it down. As of January 1, 2025, you can gift up to $19,000 per person per year without needing to file a federal gift tax return. This is the annual gift tax exclusion amount for 2025. Annual exclusion gifts may be made to multiple recipients. For example, you may give $19,000 to each of your children, Alvin, Simon, and Theodore, during 2025. If you are married, each spouse may give $19,000 to each child, meaning that Alvin, Simon, and Theodore may each receive a total of $38,000, allowing you and your spouse to gift $114,000 in 2025 without filing federal gift tax returns.
Sounds great, right? But here’s where things get complicated.
If you need Medicaid to pay for nursing home care within five years of making those gifts, the money you gave away could come back to haunt you. Medicaid has both medical and financial eligibility requirements. 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 logic is simple: if you’d held onto that money, you could have paid for your own care. By giving it away, you’ve essentially reduced your assets to qualify for government help – and that’s a red flag for Medicaid.
If Medicaid determines the gifts are disqualifying transfers, the person who made the gift will be ineligible for benefits for some period of time. The only way to avoid the penalty? The gift must be returned – which isn’t always practical or even possible. The real kicker is that the period of ineligibility does not begin until the applicant “would have otherwise been eligible.” That means the disqualification period for making a gift begins after the applicant has run out of money. And keep in mind, this trap for the unwary doesn’t just apply to cash gifts. Giving away property, like a house, counts too.
There’s absolutely nothing wrong with wanting to help your children financially – but when it comes to significant gifts, timing and strategy matter. As you grow older or start thinking about the possibility of needing long-term care, it’s essential to consult with an experienced attorney who can help you avoid costly mistakes. Thoughtful planning today can spare you and your family a great deal of stress and financial strain down the road.
Attorney Leah A. Kofos 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. 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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