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Providing a gift to another has been around since time immemorial – a part of human culture since its inception.  To give a gift is to say “thank you” or “I love you” to another out of gratefulness and with no wish for reciprocity.  This ancient practice is acknowledged in both our property laws and tax laws, but not within the laws governing Medicaid.

A common gripe we here from clients when we tell them that there is an improper transfer   penalty for a gift that was made is “my accountant said I can gift $14,000 a year without having to pay a tax”!  And your accountant or financial planner would be correct.  Section 2503 of the Internal Revenue Code provides that the donor (person making the gift) can make a gift of $10,000 each calendar year that is excluded from being a taxable gift.  The base amount of $10,000 receives an inflation adjustment increasing the amount that can be gifted each year.  For the year 2014 it is $14,000.  Thus, when a client states that they were told they can gift $14,000, they are correct under the tax regime provided by the Internal Revenue Code.

However, this is not the case under Medicaid Law.  Under the laws governing Medicaid, if an individual applying for Medicaid transfers a resource (asset) for less than 90% of fair market value, an improper transfer penalty will be applied to the amount deemed a gift.  Further, any amounts gifted in the five years preceding the Medicaid application will be deemed an improper transfer.  The improper transfer penalty that results from the improper transfer is that the applicant will be considered ineligible for Medicaid until the gift is “cured.”  Thus, once the gift is “cured” and the penalty period over, the applicant can receive Medicaid if all other requirements are met.

Therefore, if you are applying, or your parents are applying for Medicaid, you should take extreme precaution in the gifts that are made for there can be serious consequences to the applicant.  It is best to seek legal counsel when you start to make significant gifts.  Your accountant will be right that no tax is owed on the gift, but other fields of law may not be so fond of this ancient social practice!

Gifting Tax Law & Medicaid

 The Ohio Probate lawyers of Browning & Meyer Co. LPA can assist you with probate, estate administration and proper estate planning.  Please contact us today to learn more.