Medicaid Counts Annual Exclusion Gifts

Medicaid is a social program that is designed to pay for an individual’s long-term care when they no longer have any financial savings. Many people will try and work their financial planning so that they do not have to extinguish their money before eligibility kicks in. There is a common misconception that individuals will be able to give away the amount equal to the annual gift tax exclusion and have this gift amount exempted from Medicare’s five-year look-back period for financial transfers.

IRS & Medicaid Have Different Rules for Gifts

The IRS determines whether or not a gift can be taxed. Any person in the United States that gives less than $14,000 to one person in a year will not have to report the gift to the IRS. If over $14,000 is given to any person other than a spouse, a gift tax return must be filed. Should the total amount of gifts reported to the IRS over a person’s lifetime exceed $5.34 million, then the gifter will have to pay a tax on these goods.

This rule of gift-transfer has nothing to do with the asset transfer rules of Medicaid. Medicaid will look at that $14,000 transfer when a person applies for benefits. This may cause nursing home and other medical benefits to be pushed back, since it occurred within Medicaid’s five-year look back period. So while there was no gift tax, it still may penalize a person in need of Medicaid.

The Medicaid look back period implies that any one that makes gifts or transfers of money in the five-year period prior to their application for Medicare faces penalties for doing so. It will see transfers of money before filing as an attempt for a person to qualify for assistance when they did not actually require the help.

If you believe you might have jeopardized the Medicaid you will need for long-term care due to a financial gift, it is important to contact a skilled elder care attorney to look at the case. The Law Firm of Michael L. Pfeifer, P.C. can answer any questions you may have concerning Medicaid laws, finances, and planning for your future.