Can I Gift $13,000 to My Children?
Almost every week someone who needs to qualify for Medicaid (Title 19) asks, “Can’t I gift $13,000 to each of my children? I heard that this is allowed.” Or another person will say that their tax advisor told them they could gift $13,000 per year to each of their children and grandchildren. The tax advisor is correct. And it is also true that much more can be given without actually paying a gift tax, so that for many people in Connecticut, gift taxes simply do not apply to them.
While it is true that the Federal gift and estate tax laws allow a person to give away $13,000 per year to as many people as they like without any gift tax consequences, it is not true that works for Medicaid. It is strictly a gift tax rule and has nothing to do with Medicaid. Medicaid has its own rules, and they do not coordinate with tax law.
If either the husband or wife of a married couple gives away $13,000, and becomes sick and needs Medicaid within 5 years of the gift, the Medicaid rules will disqualify both of them from receiving Medicaid for a length of time called the “penalty period”. The penalty period is calculated by dividing the total amount of money given away, by the average monthly cost of a nursing home, which Connecticut now says is $11,183. So if 3 children were given $13,000 each, for $39,000 total, the penalty would be $39,000 divided by $11,183, or 3.5 months. That means Medicaid would not pay for the nursing home for 3.5 months after the person should have been eligible.
The sick person, or the healthy spouse, or perhaps a family member will have to pay for those months. It is a very unwelcome surprise to learn that a tax free gift, that is perfectly legal from a tax standpoint, will result in a very bad result for Medicaid.
Attorneys who practice elder care law are aware of these rules, and look at the total picture when doing estate planning, or planning for care for their clients. For example, if healthy parents want to gift money to their children, it is necessary to take into account the likelihood of sickness within five years, the amount of other assets available to pay for care, or the use of long term care insurance to cover that time frame.
There are many planning tools available to people, both for tax minimization, and long term care planning, and it is always advisable to get the complete picture when doing such planning.