hear clients say “I am allowed to gift up
to [currently} $15,000 per year, per person without having to pay gift tax”.
is true, but it’s better than that. No gift tax is due at all unless a total of
more than $11,180,000 is given away in a lifetime. This current limit is
combined with the Federal estate tax limit. If for example, someone gives a
gift of $5,000,000, then the amount of his or her estate at death that escapes
Federal estate tax is not $11,180,000, but “only” the difference of $6,180,000.
So, effectively, most people do not have to pay gift tax.
is in addition to the $15,000 that is allowed to be gifted to an
unlimited number of persons each year without having to report the gifts. The
only difference is that if more than $15,000 is given to any one person in any
one year, an informational gift tax return must be filed, so that the IRS can
York State does not have a gift tax.
these laws only deal with taxes; they should not be confused with Medicaid
If you seek to become
eligible for Medicaid coverage in a nursing home, you must provide copies of
all of your and your spouse’s financial records for the immediate prior five-year
period. If either of you gave gifts during that period, it will be assumed that
you did so with the intention of becoming eligible for Medicaid and you will be
assessed a “penalty” (a period of ineligibility for coverage). That period will
begin when you enter the nursing home and apply for Medicaid.
It is possible, but
usually difficult, to prove that gifts were made exclusively for some other
purpose. Small gifts for birthdays, etc., might be disregarded if a historic
pattern of such gifting can be shown. Otherwise, a penalty period will be
assessed based on the total value of gifts made – the greater that value, the
longer the penalty period.
During the penalty
period, the nursing home bill would have to be paid privately, unless the
applicant has long-term care insurance that covers the cost. However, a penalty
period will be eliminated or reduced if the gift is given back in full or in
part. Of course, getting the gift recipients to return the gift can be
difficult, or impossible if the money has been spent.
Understanding the results
of gift-giving is important. Sometimes a safer method is gifting through an
irrevocable trust. If properly written, such a trust can provide flexibility in
case a nursing home Medicaid application is needed in the future.
Copyright 2018 Joseph A. Bollhofer,
Note: Joseph A. Bollhofer
is an attorney who has been practicing law since 1985 in the
areas of elder law, Medicaid, estate and business planning and administration,
and real estate. He is also the president of Downstate Title Agency, Inc. His
legal advice has appeared several times in Newsday’s “Ask the Expert” column, a
weekly feature dedicated to elder law and estate planning issues. He is a
member of the National Academy of Elder Law Attorneys, and of the Elder Law and
Surrogate’s Court Committees of the Suffolk County Bar Association, currently serves
as chair of the SCBA’s Real Property Law Committee, and is a member of the
Elder Law, Trusts & Estates Law and Real Property Law Sections of the New
York State Bar Association. He can be reached at firstname.lastname@example.org