By Elizabeth A. Caruso, Esq.
This a myth!
For tax purposes, gifts occur all year round, but they are obviously a highly discussed topic at the end of the year for both the holidays and tax planning. Any time money is transferred from one person to another without the exchange of goods, it is considered a gift. Gifts have tax consequences. Many people think the person receiving the gift, the “done,” is responsible for any tax consequences because they just got free money, but it is actually the person who gave the gift, the “donor,” who is responsible.
This tax responsibility kicks in for individual gifts that are made over $19,000 per person, per year (in 2025). This means that the maximum amount an person can gift to someone else is $19,000 per year before gift taxes are triggered. A married couple with two children can give each of their children $38,000 ($19,000 each from parent) without incurring any gift-tax issues. What if these children are married? Each parent can also gift $38,000 to each of their children’s spouses. In this scenario, the parents can gift $76,000 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.
However, there is one catch when thinking about gifting money – the five-year Medicaid asset-transfer rule. This comes into play if a person needs long-term care services in a nursing home. Medicaid has rules and regulations for the qualifications of 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 $157,920 in assets, plus the home they live in (with equity less than $1,097,000) 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.
Clients very commonly think that because the IRS says that they can gift $19,000 per year that these gifts have no other effects. Unfortunately, that’s just not true. It’s easy to see where one rule has a limit of $19,000 and the other $2,000, 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 estate.
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 elizabeth@legacylegalplanning.com to schedule a time to discuss your unique situation.
