In order to qualify for Medicaid nursing home coverage, an individual’s assets have to be below a certain level. If used early enough in the planning process, transfers, or gifts, out of an individual’s countable assets are one tool that can help qualify individuals to fit under the asset cap.
Theoretically, making gifts can eventually trigger gift tax liability. However, there are very significant exemptions that mean most people will never have to pay gift taxes.
First, there is the annual $14,000 gift tax exemption. This exemption is per person, per year. A person could theoretically give someone $14,000 per year, every year without incurring any gift tax liability. This exemption is even more generous for married couples. Married couples can combine their exemptions to have a $28,000 exemption per person, per year.
Second, even if individuals give gifts that exceed the annual exemption, individuals can then fall back on the lifetime estate and gift tax exemption. For 2017, the total lifetime exemption is $5.49 million. The $5.49 million exempts any gifts an individual made that were above and beyond the annual exemptions and any remaining taxable assets in the combined estates of a married couple. For almost all individuals and couples, neither the gift tax, nor the estate tax should trigger any liabilities due to the annual and lifetime exemptions.
One other aside: the recipient of a gift never has to pay taxes on gifts that do not trigger gift tax liability for the giver.
Keep in mind, as a Medicaid planning tool, gifts and other transfers, only are fully effective if the gifts and transfers were made more than five years before applying for Medicaid nursing home coverage.
To see how gifts can play a part in your future Medicaid planning, please call Martha C. Brown & Associates at (314) 962-0186.