| Do you want to help your grandchild go to college?…..read on:
READER QUESTION:
I understand gifts to family are subject to a 5-year lookback. My question is, what if I were to pay for a grandchild’s college tuition? Is that also considered a gift? Thank you for your response and your time.
MY RESPONSE:
All gifts are gifts and have tax and Medicaid considerations.
On the tax side, gifts of $19,000 per year per person are exempt from all gift tax rules. If the gift exceeds this amount, then you are supposed to report it on a gift tax return (most people don’t). If the gift exceeds $19,000, it starts to eat into your lifetime federal exemption of close to $14,000,000. The good news is if the check is written to the college directly, it has no bearing on gift taxes or the $19,000 limit.
On the Medicaid side, a gift of college tuition, whether paid to your grandchild, child, or to the college itself, will be seen by Medicaid and processed as part of the 5-year lookback. There is an exception though where no penalty will be assessed for a gift that was given that had nothing to do with protecting assets for Medicaid…that there was some other legitimate reason for the gift. Whether or not the gift of paying for college will be penalized depends upon the facts and circumstances of each case, but don’t hold your breath because Medicaid usually turns a deaf ear to these assertions. For them, all gifts should normally be penalized. However, a case can be made to the contrary.
So, if you are perfectly healthy, and not participating in any asset protection plan, and you happen to pay for college and then get sick and apply for Medicaid, we have a stronger case that no penalty should be assessed. On the other hand, if you are sick and heading toward needing care, or you made the college gift at the same time as you created a sophisticated Medicaid asset protection plan (like setting up a trust), the college gift will not garner much sympathy.
The bottom line is that it all depends on the context of the gift. |
