Dispelling a Common Misconception:  Annual Gifts do NOT Qualify as an Exception Under the Strict Medicaid Transfer Rules

March 30, 2015

At our office, we frequently meet with clients regarding long-term care planning.  Many times these meetings include counseling clients regarding the Medicaid eligibility rules for a long-term nursing home stay.   (A full discussion of the Medicaid eligibility rules is beyond the scope of this post, as the rules are complex and vary from state to state.)   During these meetings, it is not uncommon for clients to make the following statement, “I know that I can gift $14,000 per year per person, without any negative consequences, if I have to apply for Medicaid.”   Most of these folks are quite surprised when we advise them that their understanding is incorrect and simply NOT true.  

Pursuant to the federal law regarding Medicaid eligibility for long-term care stays at a nursing home, there is a sixty (60) month look-back period in which ALL transfers made by the Medicaid applicant will be strictly scrutinized.   When transfers made during the look-back period are reviewed, a penalty period will be imposed for all “non-allowable” transfers.  A “non-allowable” transfer (made during the look-back period) is a transfer for which there is insufficient documentation to support that the applicant, or his/her spouse, received either  resources or services approximately equal to the fair market value of the amount transferred.  There are “exceptions” to the transfer rules, which may result in certain transfers being treated as “allowable,” even when the transfer was not made for fair market value.  However, nowhere in the Medicaid eligibility laws, rules, and policy provisions, as applied in Illinois, is the transfer of $14,000 per year per person included as an “allowable” transfer.  Thus, pursuant to the Illinois Medicaid eligibility rules, unless an annual gift (made during the applicable look-back period) fits into one of the “exceptions,” the gift will NOT be “allowable,” and it will result in a penalty period being imposed.

The genesis of this misconception is easily explained.   It is the result of confusing the federal gift tax laws with the Medicaid eligibility laws and rules.  According to the IRS, the federal annual gift tax exclusion rules provide that, in 2015, an individual may gift up to $14,000 per year per person without the annual exclusion gifts counting towards the individual’s lifetime gift exemption. This rule, however, is limited solely to the federal estate and gift tax laws, and unless the gift fits into one of the stated “exceptions” for transfers made during the look-back period, it will NOT qualify as an “allowable” transfer under the Medicaid eligibility rules.

Quite simply, the bottom line is that if you or a loved one will likely need Medicaid assistance for long-term care, obtaining legal advice (in your home state) for your specific situation is highly recommended. As noted above, the Medicaid eligibility rules are quite complex and vary from state to state.  As such, it is important to be certain that you are not confusing other laws and rules with the applicable Medicaid eligibility rules in your state.

©Copyright 2015 by Constance Burnett Renzi. All rights reserved.

To discuss elder law issues, estate planning (including Wills and/or Trusts), life care planning (powers of attorney), special needs planning, probate and/or guardianship matters with one of our attorneys, please call the Elder Law Center at 630-844-0065 or contact us via email. The Elder Law Center, P.C. is located in Aurora, IL, Kane County, in the Chicago Western Suburbs.

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