annual exclusion

Annual Exclusion and Long-Term Care Planning

Many of our clients have been in the habit of making annual gifts to their children and other beneficiaries.  These gifts are thought of as “annual exclusion” gifts because the IRS allows anyone to give up to the maximum amount (currently $15,000 per beneficiary) without filing a gift tax return and without reducing your lifetime exclusion amount (the amount you can leave to your heirs estate-tax free-currently $11,580,000.)  Gifting was more important for middle class families when the lifetime exclusion was much lower and more people were in danger of reaching that amount when the stock market went up and home values increased. Now, few of us have to be concerned with exceeding the lifetime exclusion.   But old habits die hard, and many families still make annual gifts.  It does seem nicely timed with the season of giving.

However, our older clients should be aware of the significant consequences annual exclusion gifts may have if they need to apply for Medicaid with the next five years.  Gifts can have impacts for both the giver and the receiver.

Remember that the annual exclusion for gifting is a tax law.

The “safe harbor” exists for tax purposes.  Medicaid follows different rules on gifting in terms of Medicaid eligibility.  When a person’s assets are reviewed for Medicaid eligibility, this includes a “look-back” period of sixty months in Florida.  If the applicant has gifted money during those sixty months in order to be eligible for Medicaid, the penalty is Medicaid ineligibility.  The length of time of ineligibility is determined by the amount of the gift and the average cost of a private pay nursing home.

A person deemed ineligible for Medicaid due to gift giving has some options. 

It is possible for the applicant to collect the gift back, or reimbursement in order to undo the penalty.  (Of course this will depend on whether all of the recipients still have the money available to gift back.)  Even if possession of the money makes them exceed allowable asset caps for Medicaid, they can then spend it down by  temporarily paying for their long term care or making a home modification related to their disability until they reach eligibility status.  There may also be a possibility of an undue hardship waiver, if Medicaid ineligibility will cause the person to go without medical care, food or shelter.

There may also be important impacts on the gift receiver.  There is an asset limit to be Medicaid eligible, currently $2000 in Florida.  Even a small gift can push a Medicaid recipient over the eligibility limit.  Any gift received must be spent within the month received in order to avoid affecting Medicaid eligibility.  A Medicaid recipient has options if they receive a gift.  They can pay off debt, purchase a funeral trust or a Medicaid eligible annuity.  If money is received before applying for Medicaid, the money can also be spent down in a similar fashion.  Donors should be aware of whether any donees are on Medicaid or may need it within five years.

If you will be giving or receiving money or other assets this holiday season and anticipate this may impact your Medicaid eligibility or someone else’s, contact our office at 239-434-8557 to discuss your options.

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