Happy Holidays 2023

A point of confusion for Elder Law clients engaged in the Medicaid application process is the entanglement of gift tax rules with the Medicaid gift rules. Most people are aware that an individual is allowed to make gifts up to $17,000 per person, per year, without incurring a gift tax on the transfer. This is the gift tax annual exclusion amount. It allows parents and grandparents to gift assets to loved ones generously. Thus, the Silver Bells of giving during the holidays ring brightly.

It is when a person loses their independence with activities of daily living that a history of gifting complicates things. When a person requires expensive care, they will eventually apply for Long-Term Care Medicaid. Our Medicaid clients become confused when they learn that their past gifts to family, though protected from the gift tax by the annual exclusion amount, are nonetheless subject to a penalty under the Medicaid rules. “How could this be the case?” they ask.

In the Medicaid world, a transfer of assets is a presumed gift made solely for the purpose of qualifying financially for the benefit. Gifts are not protected by the gift tax annual exclusion amount for Medicaid qualification purposes. The gifting of assets is penalized. The penalty is expressed as a waiting period during which the applicant must self-pay for their care. Whatever assets they did not give away may be exhausted during the waiting period depending on their level of care.

For a senior who needs expensive care, the silver bells of past holiday giving may ultimately “toll for thee.”