Gifting: Taxes And Charity Versus Medicaid

Many seniors are aware that some planning is necessary if Medicaid is to cover their skilled nursing care as they age and that making gifts of money or property to their loved ones before they need care can be part of that process.

There are a few common misconceptions, however, about gifting and the Medicaid Process. Often, penalties resulting from these transfers could have been avoided if clients had been aware of the consequences of their actions.

“I thought I was allowed give away $13,000.00 to each person every year.” This statement and action is a result of the misapplication of the Annual Federal Gift Tax exclusion. The Federal Government allows individuals to gift up $13,000.00 per person per year without having to pay any gift tax. Such a gift is viewed differently by the Department of Social Services and, if nothing else is done, would be subject to a penalty if it was made within five years of an application for Medicaid for skilled nursing care in a facility.

“I just took cash out and spent it”. If large sums of cash that are being taken out at once or over an extended period of time, a Department of Social Services caseworker may request documentation showing how the cash was spent.

“That was not a gift, it was for: charity, college savings plan, grandson needed a car, daughter needed a furnace, I wanted to take the family on vacation, Christmas, wedding, birthday, graduation etc… Any reasoning for transferring assets of value can be subject to scrutiny by the Department of Social Services. Unless there is documentation to show that the applicant or the applicant’s spouse received fair market value in return for the asset transferred, any such action can result in a penalty period.

Although there are times when these rules may not seem logical or fair, they are mandated by our federal and state government. If you want Medicaid to pay for your skilled nursing care, you have to follow their rules. As none of us know what our future holds, the purpose of this article is not to bar the reader from making gifts to children, grandchildren or loved ones, but to reveal possible consequences should a long-term stay at a skilled nursing facility occur in the future.

While a hindrance, these transfers are not an absolute bar to coverage and with proper legal guidance in many cases the penalty can be significantly reduced or eliminated.