Many of our clients ask, during a conference concerning Medicaid, can I make gifts to my family members. Typically, their accountant has told them that they can make gifts under $15,000 per year without consequences. That is partially correct, as these gifts only relate to tax planning, not Medicaid. It is true that there is currently a $15,000 annual exclusion for gifts. This means that an individual can give up to $15,000 per recipient per year without triggering the requirement to file a federal gift tax return. Unless there is a possibility that you may transfer 11.2 million at death (the current federal unified gift and estate tax exclusion amount), we tell our clients that they should not be concerned about federal estate and gift taxes.
But, we also caution our clients that gifting impacts eligibility for long term care services. Many of our client are facing the reality of declining health. Future health care needs and asset protection tend to go hand in hand. Each potential client wants to ensure that their future healthcare needs are met, i.e. assisted living or nursing home care, yet does not necessarily want to pay for it. There are three sources of payment for long term care: 1) long term care insurance; 2) out of pocket, private funds (or “self insured”); and 3) Medicaid. If the client had the foresight to buy long term care insurance when then they were younger, they will potentially be able to preserve many of their assets. Applying for the same, once you are older and start having medical issues, tends to be cost prohibitive.
Using assets to pay for care costs typically means using up retirement funds and liquidating assets to pay for the costs of the care. Someone who has millions is not necessarily concerned about getting on Medicaid. On the other hand, someone who has a few hundred thousand dollars may see their life savings wiped out in a relatively short period of time.
Medicaid covers long term care costs for those who meet certain financial and medical eligibility requirements. To qualify financially for Medicaid, an applicant’s income and assets must be within designated limits. In New Jersey, a medicaid beneficiary can only retain $2,000 in assets in order to qualify for medicaid benefits.
Further, under the New Jersey Medicaid rules, if an individual makes a less than fair market value transfer of his/her assets to anyone (including gifts to children or transfers to a trust) other than a spouse within five (5) years of applying for Medicaid, the transfer will trigger a Medicaid “penalty period.” This means that from the date of the Medicaid application until the end of the penalty period the length of which depends on the value of the transfer Medicaid will not pay for the applicant’s care, even if the applicant has insufficient assets and income to pay for the costs of the nursing home.
This five year Medicaid look back means that the annual gifts, with an eye toward tax planning, could be disastrous if you require Medicaid to pay for your long term care within five years of making such transfers. Just because these gifts are permitted under federal tax laws does not mean that state and federal Medicaid rules and regulations do not apply.
The attorneys at Weiss & Tom are familiar with the Medicaid issues. For more information on gifting and medicaid, you may contact the lawyers at Weiss & Tom at firstname.lastname@example.org.