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Can I Give Gifts This Holiday Season (Part 1)?

As the holiday season is upon us again, so is the season of gift giving, whether it be Christmas, Hanukah, Kwanzaa or any other life event, for that matter, that we typically associate with gift giving.  Many of our elderly clients ask us the following common question, “Can I make gifts to my family members”?

 The question they are really asking is, “how will a gift affect my need for long term care”?  I find that, while most people I speak with completely misunderstand Medicaid, the primary government program that covers long term care, they do know generally that there is some penalty for transferring assets.  That penalty, which is really a confusing term, refers to a period of ineligibility for Medicaid, not a dollar fine of some sort.  The greater the amount of the transfer, the longer the penalty.  So, for example, if I transfer $100,000 to my children, in NJ the penalty would be 13.7 months.  In New York, depending on what area of the state you live in, that penalty could range from 9.5 months to 14.9 months.

 When I explain this, the listener will often have an “aha” moment.  “Can’t we transfer $10,000 per person?  Isn’t there some gift tax law that says so?”  Actually, that gift exclusion is up to $13,000 per person per year since it is indexed for inflation.  But, no, that isn’t true, sorry to say.  While there won’t be any gift tax, there most certainly is a “potential” Medicaid transfer penalty.  And it doesn’t matter what the gift is for.  And it doesn’t matter if you gave gifts of a similar nature in the past.  In other words, if you have established a gift giving pattern for years, that won’t be excluded from the watchful eyes of the State when it comes time to file for Medicaid.

 So, does that mean the answers is “no, I can’t make gifts?”  Not necessarily, but we will talk more about that next week and I’ll explain what I mean by “potential” penalty.