Be Cautious of Gifting Money if Medicaid may be in Your Future

It’s that time of year! It is the season of giving. While giving can be a wonderful thing, we want to remind everyone that gifting is not always seen so positively, especially in the eyes of Medicaid.

Do you or a loved one need assistance with their activities of daily living? Is Medicaid a potential source of funding for long-term care in your or your loved ones future? If this is the case now, or you suspect it will be true in the future, here are a few things to keep in mind as we navigate this holiday season:

• Medicaid has a five-year lookback in New Jersey. This means that when applying for Medicaid, an individual must provide all financial transactions in the last five years, including accounts in the applicant’s individual name, owned jointly by the applicant with any another individual, or in the individual name of the applicant’s spouse. It is common practice for Medicaid caseworkers to flag transactions $2,000 and above, but some counties will flag transactions as low as $500.Medicaid calculates penalty periods of time in which they will not cover services for transfers to individuals for less than fair market value. This includes holiday, birthday, graduation, and other special occasion gifts.  Medicaid penalties are calculated based on the total transfer amount divided by the penalty divisor. The current penalty divisor for 2023 is $384.57. While smaller gifts may appear harmless, taken in the five-year aggregate, gifts of any size can cause unintended consequences.

• The current gift tax exclusion for 2023 is $17,000 per individual, and it will rise to $18,000 per individual for 2024, but it is important to remember this is not treated the same for Medicaid purposes. While an individual can gift this amount for federal gift tax purposes without triggering a tax or filing a gift tax return, this is not treated as an exempt gift by Medicaid. Remember, any gift of less than fair market value to an individual (other than the exemptions mentioned) is penalized for Medicaid purposes.
• Not all gifts are treated equally. Some gifts, often including gifts to the spouse or to children with disabilities, are exempt. If you are considering gifting or transferring assets, we recommend consulting with an elder law attorney to ensure compliance with the Medicaid gifting rules.
• Cash is not always king. Cash transactions can be incredibly difficult to account for and are usually questioned by Medicaid.
• Charitable giving is not exempt.

It can be difficult for loved ones to forgo gifting completely, so please remember, as we navigate this season, “it is not the gift, but the thought that counts.” Don’t let gifts of seasons past haunt your future Medicaid eligibility. If you have questions or want to learn more about the rules of Medicaid, please do not hesitate to reach out to me at mlscanlon@norris-law.com.