Evan H Farr, CELACertified Elder Law Attorney, Farr Law Firm · Certified Elder Law Attorney, Estate Planning Attorney, Asset Protection Trust Expert, Medicaid Planning Expert, Probate Attorney, 4-time Best-Selling Author, Creator of the Living Trust Plus®️ Asset

Medicaid and the Perils of Gifting

12 Dec 2012 · 3 min

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2:34

In this solo presentation, Certified Elder Law Attorney Evan H. Farr explains how Medicaid’s five‑year look‑back period treats any transfers made within five years of a Medicaid application as gifts made in contemplation of receiving benefits. He clarifies that unlike the IRS, Medicaid does not honor the annual federal gift‑tax exclusion, so even gifts that are permissible for tax purposes can trigger a Medicaid penalty period. Farr provides a concrete example: giving $14,000 each to three children and two grandchildren (total $70,000) would likely result in a nearly one‑year denial of Medicaid eligibility in most parts of Virginia. He notes that regular, small charitable donations (under $2,000 per year with a two‑year pattern) are often exempt from penalties in Virginia. The talk also outlines specific exceptions that do not incur penalties—gifts to a spouse, to a blind or disabled child, or to certain trusts for disabled beneficiaries under age 65. Farr concludes by advising individuals who may need nursing‑home care within the next five to ten years to balance the desire to give with the risk of losing Medicaid benefits.

Chapters

Hi, I'm Evan H Farr, Certified Elder Law Attorney, and today I'm here to talk to you about Medicaid and the perils of gifting. Gift giving can be a risky venture for people who may need nursing home care within the next 5 to 10 years. The problem is that Medicaid presumes that all gifts made in the 5 years prior to filing for Medicaid were made in contemplation of applying for Medicaid. Those gifts must be disclosed when you apply for Medicaid. If you have a history of making small weekly or monthly gifts to a charity, most Medicaid offices won't construe those to be penalized gifts. For instance, in Virginia, these types of regular gifts are not penalized so long as they're under $2,000 per year and there was a regular pattern of making these gifts for at least 2 years prior to applying for Medicaid. A lot of people mistakenly believe that Medicaid will honor the federal gift tax laws, which allow you to give away up to a certain amount each year to anyone you want. However, although the IRS allows this type of annual gifting, Medicaid laws don't. For example, if you have 3 children and 2 grandchildren and you were to give them each $14,000, That $70,000 in gifts would result in a penalty period for Medicaid of almost a full year in most parts of Virginia, meaning that you would not be able to get Medicaid for almost a full year as a penalty for having made those gifts, even though those gifts were allowed under the IRS regulations. Now, there are some exceptions to gifting. Gifts to certain recipients don't trigger a penalty. That includes gifts to your spouse, gifts to a blind or disabled child, or a trust for a blind or disabled child, or to a trust for the benefit of a disabled individual who's under the age of 65. Now, does this potential risk of, of a Medicaid penalty mean that all giving should cease? Obviously not. However, for those who may need nursing home care within the next 5 to 10 years, you need to weigh the joy of giving against the potential cost of losing much-needed Medicaid benefits.