By Elizabeth A. Caruso, Esq.
Legal Legacy Planning, LLC
As we all know, the holiday season is a time where people often give and receive gifts. For some, those gifts can be monetary in nature. Anytime when the transfer of “large sums” of money occurs, there is the potential for consequences. I put “large sums” in quotation marks because everyone’s definition of this will be different, but there are two specific definitions that the elder law community encounters, the gift tax definition and the Medicaid asset transfer definition.
With regard to the gift tax definition, a gift is taxable by the donee, or gift giver, if the gift is more than $17,000 (in 2023). This means that the maximum amount an individual can gift to another individual is $17,000 per year before gift taxes are triggered. A married couple with two children can give each of their children $34,000 ($17,000 each from Mom and Dad) without incurring any gift tax issues. What if these children are married? Mom and Dad can also gift $34,000 to each of their children’s spouses. In this scenario, the parents can gift $68,000 per year to their children and their children’s spouse without incurring any gift tax consequences. Many people utilize this gifting method to reduce their estate tax threshold or to have the flexibility to give a monetary gift when the money is needed.
However, there is one catch when thinking about gifting money – the five-year Medicaid asset transfer rule. Medicaid has rules and regulations for qualifications for benefits. One of those rules is that to get benefits, you must financially qualify for Medicaid. In order to qualify, the person needing Medicaid benefits can only have $2,000 in assets. If the person needing Medicaid benefits is married, that spouse still living at home can have $148,620 in assets, plus the home they live in (with equity less than $1,033,000) and a car. To prove you qualify, Medicaid will request your bank statements and review them. Any transaction over $1,500 will be considered a gift unless you can prove it otherwise; the proof often being an explanation as to where the payment went.
It’s easy to see where one rule has a limit of $17,000 and the other $1,500, with both referring to “gift limits,” that these rules may cause conflict for some folks. This is where it is important to meet with an elder law attorney to discuss your specific situation to see where these rules come into play with the plans you have for your money.
About the Author: Elizabeth A. Caruso, Esq. is an attorney at Legacy Legal Planning, LLC, in Norwell. She has been practicing estate planning, probate, and elder law on the South Shore for more than a decade. If this article has sparked questions for you, please feel free to reach out via phone 781-971-5900 or email email@example.com to schedule a time to discuss your unique situation.