The Gift Tax, and Gifts to Family Members

Oct 10, 2015

By Rick Law, Elder Law and Medicaid Crisis Planning Attorney at the Estate Planning Center of Law Elder Law, Kane County Senior Advocates in Illinois.

One of the most common myths of gifting is that the recipient of the gift pays taxes. It is counterintuitive that the person making a gift may be responsible for gift taxes on the amount gifted. Individuals can give away money, and if they don’t go beyond the lifetime limit, they are likely to have no gift tax issues, but they will certainly have Medicaid problems if they need nursing home care within five years of the date of the gift.

The fact that people don’t have gift tax issues does not mean they are home free. Medicaid and the IRS don’t agree on the issue of gifting.

With five years of records under scrutiny and all transfers being aggregated and brought forward to the date that the applicant is otherwise eligible, penalty periods will be imposed and the individual will have no way to pay for care. The total amount of the non-allowable transfers will be divided by either the state-specific divisor or (in Illinois) by the client’s semiprivate room rate in the facility.

Thus, if an individual has transferred $60,000 over a five-year period and these transfers are deemed non-allowable (not for fair market value) transfers, and the client has a divisor of $6,000, the penalty period, or period of ineligibility, is 10 months. The 10-month period will not start until the client is down to the asset limit and receiving an institutionalized level of care.

So, who will pay? The person needing assistance is out of money.

Too many families needlessly lose everything they have.  Don’t let that be you.  If you need help paying the overwhelming cost of long term care, give our office a call at 800-310-3100.  Your first consultation is absolutely free.  We’ll let you know what steps you need to take, right now, to protect yourself and your family.  Call now, because when you’re out of money, you’re out of options!

Sincerely,

Rick L. Law, Attorney, Estate Planner for Retirees.

Rick was named the #1 Illinois elder law estate planning attorney by Leading Lawyer Magazine. He has been quoted in the Wall Street Journal, AARP Magazine, TheStreet.com, and numerous newspapers and articles. Rick is the lead attorney for Law Elder Law, LLP, focusing in Estate Planning, Guardianship, and Nursing Home Solutions. His goal is to give retirees an informed edge when it comes to dealing with an uncertain future.  Get flexible retirement strategies that work during good times and bad, plus information on how you can save your home and assets from being used to pay for long term care.  Call 800-310-3100 for your free consultation now!