Giving money to your family can be a great way to help them get ahead, pay bills, save for their future, and more. With the Gift Tax Exclusion, you can offer monetary gifts to others without you or the recipient having to pay any additional tax. But keep in mind that any gifting you do should be done only out of love for the people you’re gifting to. That’s the best way to give, when it’s from the heart. It can also be the most important reason to give, as part of your financial planning.
That’s because you can’t use gifting as a Medicaid spend down strategy. Gifts are considered transfers for the purpose of Medicaid, and you must disclose them. If you’re thinking about giving away all your money for the purpose of protect it from potentially being used for your nursing home or other care later, it’s not a good idea. Any application for Medicaid will require you to disclose the gifts you gave to others. That’s why in this article we are discussing gifting to your loved ones and how to appropriately plan for future nursing home care.
The Maximum Amount You Can Gift Without Paying a Gift Tax
As of 2022, the maximum amount you can gift to someone without you or the recipient paying tax is $16,000 in a year. If you’re married, you and your spouse together can gift up to $32,000 per year. The people receiving the gifts don’t have to claim that money as taxable income, because it’s an amount the IRS deems excluded from the Gift Tax. However, if you or your spouse go over that amount your recipient will have to pay tax on the overage.
The Best Way to Give a Gift to Your Grandchildren
If you simply give money to your children and grandchildren, they can use that money in any way they chose. In some cases, that might not be what you have in mind for them, or for the money you’ve passed along to them. If you want to pass along money for a specific purpose, there are ways you can do that. You’ll not only help your family, but you’ll have peace of mind in knowing the money is being used in a way you feel good about. Some great ways to gift money include:
- Paying for direct medical costs
- Paying for educational expenses
- Placing money directly into a custodian brokerage account
- Placing money in trust for the benefit of a grandchild
When you exercise one or more of these options you provide your recipient with a valuable gift and feel secure that they’re using that gift in ways that will truly benefit them. Especially if you want to gift money to a family member who is very young.
How Does Gifting Affect Medicaid Benefits?
If you gift money within five years of applying for Medicaid benefits and entering a nursing home, you may experience a transfer penalty. This is because there is a 5-year lookback period for anyone who applies for Medicaid. This mean Medicaid will look back at your finances from the past five years to determine whether you spent down your money and got rid of assets in an effort to avoid paying for your care.
Calculating the Medicaid Transfer Penalty
The transfer penalty imposed by Medicaid looks at how much you’ve gifted to others within that 5-year time frame. For every $13,407 that you’ve gifted, you can expect to lose one month of eligibility for Medicaid. In other words, you will have to pay for your nursing home or other expenses yourself for that period before Medicaid will start covering the expenses. However, it’s possible to have one spouse transfer all their property to the other spouse without penalty, as this doesn’t count against the lookback period.
Create an Appropriate Strategy to Protect Your Assets
To qualify for Medicaid there is a maximum countable asset amount of $2,000, along with a maximum monthly income of $2,382 for a single person. Many of the rules Medicaid has for exempt assets are complicated and can be difficult to sort through and understand. Your home and vehicle could be exempt from determining eligibility for Medicaid, as could many of your personal belongings. In order to be sure, it’s better to work with an Estate Planning professional that can help since your situation may be different.
There are strategies to plan for nursing home care that can help you qualify for Medicaid without giving away all your assets. It’s a misconception that you basically must be destitute to qualify for Medicaid. However, you do have to be in a lower income bracket and have few assets in your name at the time you apply and by planning early and making the right financial moves you can use unique strategies that will help you be more successful in protecting yourself and your assets. Some of these strategies include:
- Using an asset protection trust.
- Creating an appropriate and legal Medicaid spenddown plan.
The safest way to navigate the Medicaid maze is to use an experienced Estate Planning attorney. An attorney can help you protect your assets within the 5-year lookback period, so you can keep more of what you’ve earned and what you want to pass along to others.
Talk to an Experienced Attorney
By reaching out for assistance you can focus on what matters most, which is gifting to others when you want to and protecting the rest of your assets should you need Medicaid benefits for nursing home care in the future. For the help you need to keep your assets from being spent down unnecessarily to pay for nursing home care call us today for a free consultation at (561) 955-8515, or contact us through our website for more information.