I regularly talk to clients who are 60 years old and above about how they plan to pay for skilled nursing care if it becomes unavoidable. The major part of this conversation is an explanation of how someone who makes gifts within 5 years of needing care could be penalized before benefits are made available.
Many people are already aware of the five year look back period that the Medicaid program imposes. But, very often, clients are confused when I bring this up because they thought it was okay to gift up to a certain amount each year. They are referring to the annual gift exclusion of the Internal Revenue Code, which is $14,000 for 2015. This exclusion allows a tax-free gift of no more than $14,000 per person.
While this exclusion is helpful for tax purposes, Medicaid has a separate and much more strict set of rules. They require an applicant to report “all” gifts within five years of applying for benefits. This even include gifts under the $14,000 annual exclusion. With these rules in mind, we can make a plan to avoid complications when benefits might be needed the most.
There are detailed rules about divestment and gifting under the Medicaid program. Please consult an attorney familiar with these rules to learn more.