Elder Law and Estate Planning Attorney serving clients in Hudson, WI and surrounding communities

Gift Planning and Medicaid…Use Caution!

There are many reasons why we make gifts to our children or loved ones. Whether we’re helping them with college tuition, buying that first home, or assisting with a medical or financial hardship, we’re compelled to take care of our family. As an Estate Planning Attorney I find that many of my clients in their senior years often feel the need to begin gifting their assets to their children or grandchildren. But great care should be taken when making gifts in our later years. Careful planning with an attorney experienced in Estate Planning and Elder Law is necessary to help ensure that your gifting is not jeopardizing your eligibility for the Medicaid program should you ever need assistance with your medical expenses or long-term care needs. When I explain this to my clients, their first response is always to remind me of the annual gift tax exclusion, which allows them to gift a certain sum of money to each child and/or grandchild each year without gift tax consequences. Well, that’s true, but read on.

Lifetime Gift Tax Exemption and Federal Estate Tax Exemption

It’s true that under the tax laws, each spouse is given an annual exclusion amount and they are allowed to gift this amount to as many individuals as they wish during the course of the year. For 2014, the annual gift tax exclusion remains at $14,000.00. (Married couples are permitted to partake in a process known as gift splitting, a topic I will save for another blog post.)  If an individual makes gifts to a person which exceed the exclusion amount, a gift tax return is required in order to report the amount that exceeds the exclusion. The reported gifts are applied against the individual’s lifetime gift tax exemption, which is also coupled with the federal estate tax exemption, a few other topics for another post.

Medical Assistance Eligibility

So if a person makes gifts throughout the year that comply with the gift tax laws, what’s the problem? Well, there is an entirely separate set of laws that apply to gifts when making application for Medicaid, a program also known as Medical Assistance here in the great state of WI. (For additional information on Medicaid, check out my Medical Assistance Planning page.)  When a person makes application for Medical Assistance, they must disclose all gifts and divestment’s they’ve made in the previous five-year period. This is what’s known as the look back period. A formula is used to calculate the number of months that a person is ineligible for Medical Assistance due to the amount of gifts they’ve made. This is known as the penalty period. Careful planning is required to avoid making gifts that might jeopardize a person’s Medical Assistance eligibility.

It’s very difficult to predict our future health care needs, or the challenges and circumstances that may come our way. Assisted living or nursing home care is quite costly, and one should never simply assume that such care will not be needed at some point in their life. Once again, careful planning is imperative. I also advise clients to consider obtaining a policy of long-term care insurance to help address their potential long-term health care needs.

Contact Kosa Law Office today at 715-386-4125 to discuss your gift planning and long-term care needs. I welcome the opportunity to assist you!