Gifting as it relates to Medicaid and Tax Consequences

LISTEN TO LAWRENCE

Dear clients and friends,

Here are two more of your questions and my response. I am combining them into one response because they are interrelated.

QUESTION ONE:

I have a question for the ‘Ask Lawrence’ emails: during the lookback period to be eligible for Medicaid, how much are you allowed to gift per year? And to how many people? Thanks so much. I appreciate the info in the emails.

QUESTION TWO:

Hi Lawrence, I want to give my son $200,000 to help him buy a home. Will this cause him or me a big tax burden? Thanks.

ANSWER:

Both these questions involve gifting. The first question asks about the Medicaid consequence and the second, the tax consequence.

Most people know that there is some $15,000 rule. It is a tax rule, not a Medicaid rule. The tax rule is that you can gift up to $15,000 per person, per year, gift tax free. That means you do not have to even report it on a gift tax return. However, you must report it as a transfer for Medicaid purposes. The Medicaid rules capture all transfers in the look back period, including the first $15,000 per year, per person.

EXAMPLE: You gave each of your 4 children $15,000 this year. You will not have to report this to the IRS. However, you did make a gift of $60,000 that will be caught in the Medicaid look back.

In the second question, there was a gift of $200,000. This would also be subject to the Medicaid look back period, but will there be a tax because it was over $15,000 per person, per year? The answer is most likely no! First, your son pays no tax because there is no tax on the receipt of a gift (or inheritance for that matter). The giver or donor pays the gift tax, if any. However, there is no tax to pay here because (1) New York has no gift tax and (2) the federal government gives us a lifetime exemption from gift taxes up to $11,580,000.

So what is the $15,000 rule all about? It is a reporting requirement only! If you give anyone more than $15,000 in any given year that will trigger your formal responsibility to file a gift tax return, reporting to the IRS how much of your $11,580,000 exemption you have left…..but NO TAX WOULD BE DUE, that is until you have given away more than $11,580,000 during your life.

I hope this helps!

Please pass this information to your family and friends and continue to keep your questions coming! If you are thinking about it, others are probably thinking about it too, so my answers will no doubt help you and many others. Let’s stay connected.

LISTEN TO LAWRENCE!

BE SAFE!