Dear Attorney Tully: My friend and I disagree on how much money you can gift without having problems with the IRS and Title 19. I say you can gift $14,000 to each of your children and not have any problems. My friend says if you gift anything you will have a problem for the next five years. Who is right?
Answer: You both are partially right. You are both confusing tax law and Medicaid (Title 19) asset transfer rules.
As discussed in my earlier columns, many people have heard of the federal Gift Tax provision that allows them to give away $14,000 per year without paying any gift taxes. What they do not know is that this refers to a Gift Tax exemption. It is not an absolute right. Having heard of the exemption, they wonder, “Can’t I give my assets away?” The answer is, maybe, but only if it’s done within the strict allowances of the law.
So even though the federal Gift Tax law allows you to give away up to $14,000 per year without incurring tax, those gifts could result in a period of ineligibility for months and in some cases years when it comes to applying for Medicaid. Still, some parents want to make gifts to their children before their life savings are all gone.
Many families confuse the federal Gift Tax laws with the issue of transfers and Medicaid eligibility.
A “gift” to a child in this case is actually a transfer, and Medicaid has very specific rules about transfers. At application time for Medicaid, the state will “look back” five years to see if any gifts have been made.
The state won’t let you just give away your money or your property to qualify for Medicaid. Any gifts or transfers for less than fair market value that are uncovered in the look-back period will cause a delay in eligibility for Medicaid.
Your friend is partially wrong in that not every transfer of assets carries with it a five-year waiting period.
Many exceptions exist in Medicaid (Title 19) where an individual could protect assets without waiting five years.
That is why you should seek the advice of an experienced elder law attorney who knows the specifics of the law and can give you sound legal advice.
Attorney Daniel O. Tully is a partner in the law firm of Kilbourne & Tully, P.C., members of the National Academy of Elder Law Attorneys Inc., with offices at 120 Laurel St., Bristol (860) 583-1341.