Gifting Impact on Medicaid Eligibility

Gifts are assets that are fully, or partially (typically real estate) transferred out of your name into someone else’s name. Clients come to me and explain that they want to give their assets away, either by putting into someone else’s name, or into an irrevocable trust, to protect their assets from potential nursing home care expenses. Any gift is scrutinized and considered if Medicaid becomes an issue within 5 years including large expenditures, and even for gifts for birthdays, charities, and holidays.  Medicaid does, however, allow an annual “de minimis” gift of $1,200 total to children.

My typical conversation is first to ask their comfort level to relinquish control and access to these assets.  If assets are gifted, the client loses control of these assets.  The recipient’s lifestyle, lawsuits, bankruptcy, and a divorce could result in those assets to be lost forever. 

The next conversation is to explain the difference between the Federal Gift laws and Medicaid.  People mistakenly think that they can give $15,000 per person/year ($16,000 as of 1/1/22) and not affect Medicaid or need to be disclosed. While the IRS allows gifting of $15,000 per person/per year ($16,000 as of 1/1/22) and not to be reported on a Federal Gift Tax Return for that year.  This is not true as to Medicaid.  If large gifts are made and Medicaid benefits are applied for within 5 years of the gift, then the countable gifts would have to be considered and reported.

In a nutshell, for every $6,873 (as of 2021 for Indiana and adjusted annually) would cost the client one month of coverage.  So, if $68,730 of assets are gifted, then a 10-month penalty would be assessed ($68,730 divided by $6,873= 10 months).  If a gift is made more than 5 years from applying for Medicaid, then no transfer penalty is imposed. 

I always recommend clients keep some money back to private pay if say it is 4 years after a major gift to allow them to private pay for care before applying for Medicaid to pay to get beyond the 5‑year lookback period so these large previous gifts would not be counted.  If a large gift is made, and no money is held back, the Medicaid laws allow the gifted assets, if assets available, to be returned to “cure” or reverse the penalties imposed on gifting. 

It is important to get professional guidance due to the complexity of the Medicaid laws and the facts of your situation.

© 2021 Glenn A. Deig, Attorney at Law LLC