“Mrs. Smith” recently came to us to inquire about obtaining Medicaid nursing home benefits for her husband. He had suffered a stroke three years prior. She was a devoted caregiver, but now her own health was rapidly deteriorating. She did not have the skills or stamina to meet his increasing needs. Much as she wanted her spouse of fifty years to continue living with her, she knew a nursing home would have to be the next step.
Would Medicaid help cover the cost of his nursing home care, she wondered? As we began our discussion, Mrs. Smith told us that she and her husband had made gifts to their children during the lookback period. She then went on to share a common misconception: She believed those gifts would not be an obstacle to his eligibility because the gifts did not exceed the amount someone can give away tax-free. Mrs. Smith was making the common mistake of conflating Medicaid rules with federal tax laws. That can be a costly mistake, so let’s clarify these laws and distinguish between them.
Annual Gift Tax Exclusion, Explained
Under the federal annual gift tax exclusion, you can give each of as many people as you desire, up to $18,000 per year (the 2024 figure), without needing to file a gift tax return. Gifts up to that amount are not deducted from your lifetime estate tax exemption (currently $13.61 million). However, if any such gift to an individual exceeds $18,000, a gift tax return is required. The IRS then deducts the excess over $18,000 from your lifetime exemption.
Example: Let’s say this year you give your daughter $18,000, and you give each of your two sons $24,000. Since each of the $24,000 gifts exceeds the gift tax exclusion by $6,000, you must file a gift tax return for $12,000 ($6,000 x 2). The $12,000 is deducted from your lifetime estate tax exemption. But no tax is actually paid by you until the lifetime exemption is exceeded; the gifts are simply reported to the IRS.
Couples may give away twice the annual exclusion. You may also give away, without tax implications, as much as you want, provided the payment is made directly to a medical provider or to an educational institution.
Florida Medicaid Rules About Gifting, Explained
Now let’s talk about Florida Medicaid law. Under these rules, Medicaid looks at every uncompensated transfer made by the applicant to someone other than a spouse that was made within the lookback period prior to application. The lookback period is the five year period prior to application. Whether the gift is under $18,000, the current annual exclusion, is immaterial. It still counts against eligibility.
Gifts are totaled and used to calculate a penalty period. During the penalty period, the applicant, even if qualified in every other respect, is ineligible for Medicaid benefits.
To use the example from above: Medicaid would take $66,000 ($18,000 + $24,000 + $24,000) and divide it by a penalty divisor, currently $10,438. That calculation would yield the number of months that the applicant is not eligible for benefits. In this example, the applicant would not get Medicaid benefits for a 7 month period. The period of ineligibility begins at the date of application, not the date the gift was made.
Our Lawyers Can Often “Undo” Gifting Problems
If you believe you may apply for Medicaid benefits in the not-too-distant future, you should remember that uncompensated transfers in any amount during the look-back period may jeopardize eligibility.
However, if you have already made such transfers and want to apply for Medicaid, do not assume nothing can be done about it. Our elder law attorneys are highly knowledgeable about Florida’s Medicaid laws, and depending on your circumstances, can often come up with a legitimate way, with total integrity, to “undo” those gifting problems. Call us at 561-625-1100 to schedule your consultation.
