According to gift tax rules, any person can gift up to $14,000 to another person each year without incurring any gift tax consequences. That means a husband and wife can each gift up to $14,000 to a child each year, and to the child’s spouse each year, effectively moving $56,000 per year to a couple without any gift tax concerns.
Most of us do not make such generous gifts, as that much free cash may not be available. We do, however, tend to gift small amounts to children or grandchildren for birthdays, Christmas, baptisms, 529 college funding programs, etc. Even these can cause problems later.
The problem is that there are very different rules on gifts, depending on what may happen years later. Gifting as mentioned above is fine for gift tax purposes, but would be a serious problem if one ever needed Medicaid.
Medicaid is the joint state-federal program that will pay for Long-Term Care if you become impoverished. The government thinks that if you gave your money away, and now need government assistance, you should incur a penalty period on that assistance based on how much you gave away.
Yes, $25 checks for Christmas count! All gifts count. All gifts given during the 5 years prior to your needing Medicaid to pay for your LTC count. Since none of us have a crystal ball to tell us when our health will change, this can be a problem.
When you spend down to Medicaid impoverishment, which does not take long (nursing homes are now north of $100,000 a year), you face the Medicaid application process.
Medicaid investigates your finances and totals up any and all gifts given over the past 5 years. They then divide this total by the average “base” cost of a nursing home to determine how many months you could have paid for your care – if you had not given this money away.
Worse yet, the penalty starts once you are officially impoverished – broke.
The point is, if you are giving away small gifts, perhaps you should give cash instead of something traceable like a personal check. Bank records will have all the checks you’ve written, but small amounts of cash are not tracked.
Don’t inadvertently cause yourself grief and financial difficulties for doing a nice deed. Be aware of the differences between gift tax and Medicaid rules. For more information visit www.TheLongTermCareGuy.com