Many people mistakenly believe that the $19,000 annual gift tax exemption protects assets from Medicaid penalties—but that’s not the case. This article explains how the Medicaid gift rule works, how gifts can delay eligibility, and why consulting an elder law attorney is important for asset protection and Medicaid planning.
A client asked the following.
The health of my widowed 74-year-old mom is starting to decline. My sister and I understand mom must have limited assets to qualify for Medicaid. She owns an annuity and bank accounts worth about $100,000. A coworker tells me she can give each of us $19,000 yearly without a Medicaid penalty. Is this right?
Answer:
Your coworker is confusing a rule dealing with income and gift tax rules with Medicaid rules – a common and financially dangerous mistake.
Your co-worker refers to an exemption under the Federal Internal Revenue Code. Under that code, the first $19,000 of gifts made in a given year to an individual are exempt from gift tax. The exemption allows families to distribute wealth by reducing the size of their estate taxable at death.Â
However, that exemption does not apply to situations when applying for Medicaid benefits. Families wrongly believe the annual gift tax exemption shields them from Medicaid’s transfer penalty if nursing home care is needed sometime in the future.
It doesn’t. In fact, the opposite is true.
When an application is filed, you must list all gifts and property transfers made in the five years preceding the application. The gifts are then added to determine how long the penalty will last. In Texas, for approximately each $7500 gifted, Medicaid delays eligibility for a month. A gift of $100,000 could delay benefits for 13 months.  When gifts like these are made with the belief that the money is protected, the recipients spend rather than save it. If Medicaid imposes a penalty, where will the money come from to pay for your mom’s care during that time? The result can be a terrible hardship on the entire family.
Giving away assets can be an effective Medicaid asset protection strategy used properly. Even if you’ve already made such gifts, an Elder Law attorney experienced in Medicaid estate protection planning can guide you on the right steps to take now that protect assets and increase your chances of qualifying for Medicaid assistance.
