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Medicaid Planning and Gift Giving

Medicaid Planning and Gift Giving

It’s better to give than to receive, right? Yes, unless you are planning to someday apply for Medicaid long-term care benefits. If you think you may need to apply for Medicaid long-term care benefits in the future, be careful what “gifts” you offer because it could disrupt your plans and leave you ineligible for benefits.

How Do Gifts Affect Medicaid Eligibility?

According to federal Medicaid law, transferring certain assets within five years of applying for Medicaid long-term care benefits results in a period of ineligibility. The period of ineligibility is referred to as a transfer penalty. The length of the “period” depends on the value of the transfer or gift.

Federal law allows an individual to transfer up to $15,000 in one year as a gift without being subject to gift tax (as of 2019). But don’t confuse this with Medicaid eligibility requirements. Medicaid would still treat the $15,000 gift as a “transfer.” During the Medicaid application process, all transfers made come under scrutiny. Medicaid does not have an exception for gifts made to charitable organizations. If money is given to a charity, it could affect Medicaid eligibility. All gifts are treated equally when it comes to Medicaid eligibility: charitable gifts, wedding gifts, graduation gifts, birthday gifts, holiday gifts, etc. All of the above can result in a transfer penalty. You may even end up with a transfer penalty due to the purchase of an item for a friend or relative.

The state is likely to request documentation of purchases/how the money was spent if you make a large cash withdrawal or if you a large amount of cash is withdrawn over a more extended period. Without documentation reflecting a fair market value return for the transferred asset, you could be facing a transfer penalty.

Are Any Transfers Exempt?

Most transfers will be penalized, but some transfers are exempt for Medicaid eligibility purposes. Transferring an asset to the following will not result in a transfer penalty:

  • A Spouse
  • A trust (benefitting your blind or disabled child solely)
  • A trust (benefitting any individual under the age of 65 who is permanently disabled).

If you are interested in learning more about special exceptions to the Medicaid eligibility transfer penalty, please don’t hesitate. Experienced Medicaid planning attorneys are ready to assist you at Elder Solutions Law Firm, PA.