Does Making Annual Gifts Impact on Medicaid Eligibility?

The Facts: I have been making gifts of $13,000 per year to my children for some time. I was told that as long as I did not give any of my children more than $13,000 a year, I would not be penalized when I applied for Medicaid benefits. A friend of mine who also gave gifts to her children just told me that she could not receive Medicaid benefits for almost a year because of gifts she made to her children, even though the gifts were under $13,000 per year.

The Question: Have the Medicaid eligibility rules concerning gifts changed recently?

The Answer: Although the Medicaid eligibility rules have changed, they have not changed with respect to uncompensated transfers or gifts. Medicaid penalizes individuals who have made gifts except in some limited circumstances. For example, uncompensated transfers to a spouse or to a disabled child do not trigger a penalty, regardless of the size of the gift. Assuming the gifts to your children do not fall within these or any other recognized exceptions to Medicaid’s uncompensated transfer rules, you will be penalized for each of the $13,000 gifts you made if those gifts were made within five (5) years of when you apply for Medicaid benefits.

I find that confusion surrounding annual gifts stems from the fact that many people believe that if a gift is not subject to gift tax, it will not impact their Medicaid eligibility. Unfortunately for you, that is simply not true. The fact that the IRS allows individuals to make annual gifts up to the “annual gift tax exclusion amount,” currently $13,000, is totally unrelated to and has no bearing on the Medicaid eligibility rules. For purposes of Medicaid, any gift or uncompensated transfer may potentially trigger a penalty period and significantly delay the date upon which an individual become eligible for benefits.

Because the Medicaid rules are very complex and change over time, the best way to insure that you do not jeopardize your eligibility to receive Medicaid benefits is to seek the advice of a knowledgeable attorney with experience handling Medicaid issues.

This article first appeared in the June 28, 2012 issue of the Times Beacon Record Newspapers.

Linda M. Toga of The Law Offices of Linda M. Toga, P.C. is an East Setauket, New York attorney with a general law practice focusing on estate planning, real estate, marital planning, small business services and litigation.