Posted on Sep. 1 2019.
Dear Clients and Friends,
MAKING GIFTS DOES NOT MAKE YOU ELIGIBLE FOR MEDICAID
Through my seminars, I have discovered certain ideas that are false are considered to be true by a majority of the population. One of the most common incorrect ideas is that you can make yourself eligible for Medicaid by making gifts as long as they are not over $15,000 per year.
This misconception comes from confusing Gift Tax Law with Medicaid Law.
First, let’s look at the Federal Gift Tax Law.
Gift tax, if due, is paid by the giver.
A person may make a gift not to exceed $15,000 per year and not pay any gift tax. There is no limit on how many of these gifts from $1 to $15,000 per person you can make. If you are married, your spouse can also give $15,000 per person per year. No tax is due.
If your gift exceeds $15,000, then the amount over $15,000 is deducted from your “Federal Estate and Gift Tax Exemption” of $11.4 million. This is your lifetime exemption. It is in addition to your annual exemption. You do not have to pay any gift tax until you have used up all your lifetime exemption. In other words, you do not have to pay any gift tax until you give away at least $11.4 million. If you are married, it is $22.8 million. If you are worried about doing that, then you are reading this email on your yacht.
The other end of the financial spectrum is Medicaid. Medicaid is a needs based, federal program primarily for covering the expense of a nursing home. When you apply for Medicaid, some of your assets are exempt from a “spenddown” but the rest must be spent paying for the nursing home until you are down to $2,000. Then Medicaid will kick in. Assets exempt from the spenddown include your primary home, a car and a prepaid funeral.
Many applicants for Medicaid believe they can give away their assets to children and others under the $15,000 rule. Yes, they can give it away and no tax is due. However, and this is the problem, Medicaid says a gift made any time in the preceding five years prior to filing for Medicaid is a “Divestment” and a Divestment penalty will apply. The Divestment penalty is a mathematical formula but it basically punishes you with a one month delay in benefits for each $8,000 you gave away in the last 5 years. You could find yourself with no money and still not eligible for Medicaid for months.
The bottom line is that $15,000 per year is a tax rule, not a Medicaid rule. No tax is due. However, if you should decide in the future that you need to apply for Medicaid, you will be penalized by the Medicaid rules for each gift you made in the preceding five years.
Please call my office for a free Medicaid planning consultation.
Also, below is a list of my seminars for this month:
September 11 Wills, Trusts and Ladybird Deeds
September 25 New Laws Affecting your Estate Plan
September 19 How To Review Your Estate Plan
September 26 How To Review Your Estate Plan
Please see my website, www.gfalawfirm.com, under the Events tab, for all my remaining seminars in 2019
As we approach fall, here is something to make you smile:
What will fall on the lawn first? An autumn leaf or a Christmas catalog?
Very truly yours,