How Holiday Gift Giving Fits in With Medicaid Planning

The goal of Medicaid planning is to help offset the exorbitant costs of long term home based or nursing home care. If you are over 65 or become disabled, Medicaid will cover these expenses, provided you meet certain state and federal requirements. As an entitlement program, your income is a factor and falling above state levels could result in your being disqualified from coverage.

You may have worked hard all your life accumulating assets with the intention of leaving an inheritance behind for your loved ones. As the result of Medicaid requirements, nursing home and long term care costs could easily deplete these funds before program benefits ever kick in. There are several strategies to avoid this scenario, which include making gifts now, rather than requiring heirs to wait for distributions through your will. There are some potential drawbacks with this strategy, which are important to keep in mind at this time of year.

Asset Distributions as End of Year or Holiday Gifts

Making distributions to family members or friends in the form of holiday gifts is one way to reduce your total assets in order to increase your eligibility for Medicaid benefits. Under Internal Revenue Service (IRS) guidelines, you may make gifts of up to $14,000 a year per person without incurring tax penalties. This offers a way for you to provide beneficiaries with their inheritance in yearly increments, which offers several advantages:

• Allows you to slowly reduce assets that may prevent you from having your long term care costs covered by Medicaid;
• Gives you the opportunity to actually see the happiness your financial gifts provide others;
• Can allow distributions to be made when they are needed most, such as to help offset the costs of getting married, buying a home, or having a baby.

While the holidays may seem like the perfect time to make these types of gifts, there are important factors you need to consider. When applying for Medicaid, there is a ‘look back’ period. This means they will review all financial transactions made over the prior five years to see what types of distributions were made. The program view is that money given away to others could have been used to help offset long term care costs. As a result, even though you no longer have these assets, they may be attributed to your net worth, delaying Medicaid eligibility.

Contact Us Today for Help

Avoiding the look back period is one of the many reasons why it is important to begin Medicaid planning early, long before it is needed. There are also other ways of protecting your assets against being depleted by high long term care costs, such as by placing your assets in a trust.

In making nursing home and long term care plans, each situation is unique. To protect yourself and your loved ones, the best course of action is to discuss the matter with an experienced New York Medicaid planning attorney. Reach out and contact Cavallo & Cavallo today to request a consultation in our Bronx or Westchester office.

Resource:

irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes