It seems like every day someone tells me that they are going to protect their assets from long term care expenses by making a gift of $10,000 to their children. Ah, if only I had a dollar for every time I heard that one! Unfortunately, these people are misinformed.
First of all, the amount that you can gift to a child or another person on an annual basis is $13,000 without having to file a gift tax return. Any amount over this annual amount will require a gift tax return, but currently, the gift exclusion is $5.12 million. Therefore, most people should not be concerned about limiting a gift to $13,000.
For emphasis, this is only a tax rule, not a Medicaid rule. Any amount that is given to another person triggers a 5-year waiting period, which basically means that the amount of the gift, whether it is $10 or $100,000, carries with it a 5-year look-back period. The donor will not be qualified for Medicaid benefits until either the 5 years lapses or all of the funds transferred are utilized for the benefit of the donor. There is no minimum gift threshold that doesn’t trigger the look back, and some states even question and disqualify Christmas, anniversary, and birthday gifts.
Here is a short list of permissible expenditures that do not normally disqualify a person for Medicaid eligibility, the following is a list, although (These amounts may vary from state to state:)
- $2,000 personal needs account
- Prepaid burial account
- $1,500 burial account earmarked specifically for funeral and related expenses
- Purchase of any necessary medical equipment
- Payment of expenses of a home while the person is living there
- A home while the person is living in it (with equity of up to $750,000 in some states)
- Personal belongings and household goods
- 1 car
All other assets, including jointly owned bank accounts, CDs, retirement plans, revocable trusts, second cars, second residences, life insurance, U.S. Savings Bonds, etc, are countable and will have to be spent on a person’s long term care.
However, if a person is married, there are strategies available to assist with saving and preserving assets, since the disqualification rules relative to the 5-year look back do not apply to transfers between spouses.
While repetitive, it is worthwhile mentioning this information again in an attempt to clarify the annual exclusion rule for taxes vs. Medicaid. There is no substitute for good legal advice from a qualified elder law attorney, however, when considering any Medicaid or tax planning strategy or transfer.
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