By Jane M. Fearn-Zimmer, Esquire

Clients frequently want to know whether they may make gifts to their children and grandchildren for birthdays, holidays or to assist the child financially.  It is not uncommon to encounter confusion between the federal gift tax regulations with the Medicaid regulations, which are two entirely distinct sets of rules.

Many people are familiar with the annual exclusion found at § 2503(b) of the Internal Revenue Code, which allows an individual to gift without a gift tax consequence, up to the sum of $14,000.00 annually to any other person. Married couples may stack their annual exclusions to give up to $28,000.00 to another person, per calendar year, if they agree to do so.

While there may not be a negative tax consequence from small gifts and even of gifts of up to $14,000.00 per calendar year, gifts to children and grandchildren, of any amount, can jeopardize Medicaid coverage for long-term care for New Jersey residents.  This is because under the federal Medicaid statutes, the total amount of all of the gifts regardless of amount made during the five years immediately prior to the filing of the Medicaid application must be computed and a Medicaid penalty period must be imposed for a time period corresponding to the total amount of those gifts. Under the current New Jersey policy, even if some of the gifts are returned, the total amount of all of the gifts made during the lookback period will be subjected to a Medicaid penalty period. This can have disastrous results on a Medicaid application.

To illustrate the rule, if John and Mary make $92,000 in gifts to their children between January 2012 and January 2017, and John files a Medicaid application during 2016, even if $90,000 of the gifts are returned, John will still be subject to a Medicaid penalty period corresponding to the $92,000 in gifts made during the past five years.

Federal law allows states to disregard a small amount of gifts in computing the Medicaid penalty period if the state is amenable. Currently, Jerold E. Rothkoff, Esquire, is actively working with the State of New Jersey to revise their policy to permit small gifts of up to $500.00 per month to be made without Medicaid consequences.

 

Written: October 31, 2017

About Jane

Jane is an Associate Attorney with Rothkoff Law Group, an elder care law firm. Jane received her LL.M. in Taxation from Temple University. She has focused on the fields of tax and estate planning, asset protection planning for elderly and disabled clients, and Special Needs Trusts since 2005. Jane has presented on tax, Medicaid planning and estate planning topics to a broad range of groups. When not in the office Jane spends time with her family and volunteers for the Delaware Valley Chapter of the Cystic Fibrosis Foundation.

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