Myths and Misconceptions Vlog #3: I Can Gift $15,000 Per Year Without Penalty
While many people are familiar with the gift tax exemption, it is often mixed up with the Medicaid five-year look-back rules. Watch the video below for the full explanation by attorney Joan Reed Wilson:
If you are having trouble viewing this video, please see the script below:
Hi everybody! Attorney Joan Wilson here. It’s Monday which means it’s time for Mondays’ “Myths and Misconceptions about Medicare and Medicaid”. Today happens to be Monday, March 16th, 2020, and uh we’re all in the midst of trying to protect ourselves against the coronavirus.
Hopefully, a few months from now somebody watching this video may have forgotten all about what it was like, but right now it’s a scary time. We spend most of the day here trying to make our office virtual, so our staff can work remotely, and we can still address all of our clients’ needs.
And I hope you and everyone you love are staying safe and healthy in this scary time. But I did not want to leave tonight before finishing the vlog for the myths and misconceptions this month. We’re on month number three and myth number three on the list here is –
“I’m allowed to gift fifteen thousand dollars per year to my children without penalty”
Related Post: Elder Law Attorney Breaks Down 2023 In Numbers
And I can tell you, I think this myth is probably the one that catches people the most. Most people have heard that they can give money to their children without having to pay taxes on it, a lot of people think it’s ten thousand dollars that’s what it used to be, and it was that for many years.
It’s gone up uh slowly over the last few years and this year it’s fifteen thousand dollars. But it’s not true that you can gift that without penalty.
Those gifts are only excluded for gift tax purposes and not for Medicaid planning purposes.
So what the law is is that you can gift fifteen thousand dollars per person. It doesn’t have to be your child, it doesn’t have to be a blood relative, and you could give fifteen thousand dollars to every single person you know per year. It falls under the gift tax exclusion, which means you don’t even have to file a gift tax return to report that.
If you gift more than that you have to file a gift tax return and report your gift to the IRS, and it’ll chip away at your lifetime allowance of giving. But, if you give fifteen thousand dollars to each of your children or to each of your grandchildren, and then within five years of making that gift you need to apply for Medicaid services through the state of Connecticut, the state Department of Social Services is not going to exclude that gift.
It falls under a different law and there’s a different department that’s reviewing it, so it could get people into trouble assuming that they can make those gifts and it won’t disqualify them for Medicaid purposes.
So if somebody applies for Medicaid and the Department of Social Services looks back in their history, in the five-year history, and sees that there’s a $15,000 gift, that is a penalizing gift.
The state will not pay for your services if there’s no excuse for making that or you haven’t received anything in exchange for that. Any transfer that you make, the state wants to see that you got something in exchange for that because they don’t want people to just give their money away and then apply to the state, to have the state pay for their care.
So it makes sense for everybody else, it makes sense for all the taxpayers of the state, we don’t want people to just be able to give away all their money and then apply for Medicaid to pay for their long-term care needs. But it does trip people up because of this gift tax exclusion that so many people know about.
So for Medicaid planning purposes, if you have made any gifts that you don’t receive anything in exchange for, even if it’s under the fifteen thousand dollars a year per person, it could cause problems. And it’s something to keep in mind when you’re making gifts out to children or to grandchildren.
If you have any other questions about that we can always help you with Medicaid planning with long-term care questions so give us a call we are available. We are answering the phones, we are answering emails and again I hope you all say safe and healthy.
Learn more about the gift tax exemption and Medicaid in this full article... Does The Gift Tax Exclusion Apply To Medicaid?
Joan Reed Wilson Esq. – Managing Partner
Practices in the areas of estate planning, elder law, Medicaid planning, conservatorships, probate and trust administration, and real estate. Admitted to practice in the States of Connecticut and California, she is the President-elect of the CT Chapter of the National Academy of Elder Law Attorneys (NAELA), an active member of the Elder Law Section of the Connecticut Bar Association, accredited with the PLAN of CT for Pooled Trusts, with the Veteran’s Administration to assist clients with obtaining Aid & Attendance benefits for long-term care needs and with the Agency on Aging’s CareLink Network.