Medicaid generally penalizes gifts.
  • As a matter of policy, the government wants to discourage people from giving their money away and applying for benefits.
  • Generally, gifts made within the look-back period (presently 5 years) are subject to a penalty.
  • There are important exceptions to the general rule and these exceptions open the possibility of significant asset-protection strategies.

What is a gift?

A gift is any transfer of an asset (cash, stocks, life insurance, real property, etc.) to someone else without receiving full value for the exchange. For example, Mrs. Smith sells her home to her son for $100,000. But the home is valued at $395,000. From Medicaid’s perspective, Mrs. Smith made a gift of $295,000.

Can I make gifts and apply for Medicaid?

Yes, you can. But it must be done with a strategy knowing the rules, exemptions, and penalties. Without a plan accommodating for all the applicable rules, you can jeopardize eligibility and incur gift penalties that could leave you without the ability to pay for your care.

What about the IRS Annual Exclusion?

Presently, the IRS allows each individual to give up to $15,000 per person per year without any obligation to file a gift tax return. Unfortunately, Medicaid does not honor the IRS annual exclusion—these are two different government entities with different rules that apply to the same transaction. The result for Medicaid is that annual exclusion gifts are generally still subject to penalty.

Do gifts to my church and charities count?

The short answer is yes, they count as gifts and are subject to penalty. We have often seen caseworkers take a reasonable approach to this. But make no mistake, the rules allow the caseworker to apply the gift penalty. If you think you may need care but would still want to give to charity, it would be wise to do that with a plan.