Many people assume that the annual federal and state gift tax exclusion of $14,000.00 per recipient also applies if you file a Medicaid application. That is not true! Gift tax rules are very different from Medicaid eligibility rules.
Gift tax rules: The current annual federal gift tax exclusion is $14,000 per non-spouse recipient. This means you may make a gift of $14,000 (or less) to as many people as you want in 2014 without being required to report the gift (or gifts) to the Internal Revenue Service. You also may make gifts for tuition and medical expenses that do not trigger a reporting requirement. Connecticut, through the Department of Revenue Services, has a similar gift reporting requirement. If you exceed these amounts and are required to file a gift tax return, it does not necessarily mean you owe a gift tax. Whether or not a federal gift tax will be owed depends on whether your reportable gifts total more than $5.34 million (2014 figure) during your lifetime. In Connecticut, if your aggregate reportable post 2005 gifts exceed $2 million (2014 figure), a gift tax may be payable.
Medicaid rules: Gift tax rules have nothing to do with Medicaid eligibility rules. Filing a Medicaid application requires you to report all gifts made during the five years immediately preceding the date of the Medicaid application (“look back period”). Depending on the circumstances, any gift made during the look back period may result in a “penalty period.” This was discussed in detail in our April, 2014 Orange Town News article.
So, don’t get trapped into thinking that a gift to a family member for less than $14,000.00 is Medicaid safe; it may not be. Although there may be ways to make a gift that complies with the gift tax rules and, at the same time, does not create a Medicaid eligibility problem, you need to be properly advised before doing so. The best way to strategize gift giving in a way that is right for you is to meet with a professional who will ask the right questions, listen to what you say, and make recommendations individually tailored for you.
For advice specific to you, please contact the office. We would be glad to meet with you for a no hassle, no charge initial consultation, no matter how long it lasts.