By: Robert J. Shanahan, Jr. Esq.
When it appears that a parent needs nursing home care, the family is often concerned that the money earned by the parent will all be spent on their care. That the parent’s hope of passing on assets to their children and grandchildren upon their death will not be realized, is of concern. Often, I am asked if anything can be salvaged, and the question of the $14,000.00 gift tax exemption is raised.
The Federal Gift Tax Exemption
Under Federal Law, everyone is permitted to gift up to $14,000.00 to as many people as they wish, in a single year, without having to file a Gift Tax Return. This is particularly useful in spending down your estate, if Estate Taxes are an issue. However, this exemption is for Gift Taxes, not Medicaid.
Medicaid’s Five-Year Look Back Period
When you apply for Medicaid, Social Services will review your assets and transactions for the past five years. This is called the “Five-Year Look Back Period”. If Medicaid sees that you have gifted money or assets during this period, you will be deemed Medicaid ineligible for a period of time. Medicaid is a program that provides health care financing for the indigent. Such gifts are deemed an attempt to deliberately impoverish the applicant and have the State pay for the nursing home care, when personal funds would otherwise be utilized.
Thus, gifts of $14,000.00 to anyone will be deemed improper for Medicaid eligibility. You will not have to file a Gift Tax return, but you will be held ineligible for Medicaid when you need it most.
Medicaid’s View on Small Gifts
Some small gifts, however, seem to be allowed. Depending upon the county in which you are applying, gifts under $500.00 or even $1,000.00 are not an issue. Hunterdon County seems to permit transfers of $500.00; in Somerset County, the number is $1,000.00. Certainly, small holiday or birthday gifts of money will probably be allowed. However, this does not mean that the potential applicant can make $500.00 gifts every month per year and get away with it.
The Penalty Divisor
When Medicaid determines that improper transfers were made, it totals the transfers up and divides the total amount by the Penalty Divisor. Currently, the divisor is 10,000, the average monthly nursing home cost in New Jersey. This will determine the number of penalty months in which no Medicaid benefits will be paid. For example, last year, Applicant made a gift of $14,000.00 to his niece. He applied for Medicaid this year. Medicaid found a two-month penalty by dividing the $14,000.00 by 10,000, which equaled 1.4. Rounding up the fraction to a full month, Medicaid found a two-month penalty.
Gifting and penalties are tricky business. There are many dos and don’ts, and, in New Jersey, they may be different from county to county. It is best to seek legal advice in planning, as a mistake may cost thousands, and deprive an elderly person of the care they need. Shanahan & Voigt can help. Give us a call.
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