NJ Medicaid Planning Traps: The "$17,000 Gift" Rule
Updated on 2/3/2023 to reflect the most recent amounts allotted for gifts.
We get the question a lot here: people are told that they can give away up to $17,000 per year per person, but does that affect their eligibility for Medicaid benefits?
Here's the short answer: giving away money or property can affect your eligibility for Medicaid. There are no two ways about it. With the proper guidance, however, it may be possible to transfer money as a gift within the parameters of the law. The ultimate goal is to avoid any penalties or delays in coverage.
Gift Tax Program vs. Medicaid
Federal law dictates that the transfer of certain assets within a span of five years before applying for Medicaid, known colloquially as the "lookback period," can result in ineligibility for a certain period of time depending on the amount of money in question. Penalties of this sort are referred to as “gift penalties" or more technically as “ineligibility due to transfers for less than fair market value.”
The $17,000 number (adjusted for inflation every so often so it will eventually increase) is the number you're allowed to gift and avoid filing a federal gift tax return. The gift tax program and the Medicaid program are completely different animals. While $17,000 may be the cap for federal gift tax, Medicaid laws still consider it a transfer.
No gift, no matter how innocent, escapes the watchful eye of Medicaid. Whether you give for charity, birthdays, weddings, or graduations, a transfer penalty might be incurred depending on the amount and the policies in the county where you live. It is common practice now for the county to ask for documentation for any expenditure over $1,000; in some cases, even lower amounts are questioned.
Exceptions to Transfer Regulations in NJ
There are certain exceptions to the transfer regulations in New Jersey. They are largely based on federal regulations. For example, transfers between spouses are exempt before Medicaid eligibility is established. Additionally, there are provisions for blind or permanently disabled children, certain trusts established for the benefit of disabled individuals, and transfers of a home to children (and in some cases siblings). These exceptions are narrowly construed and advance planning is really important because a denied Medicaid application in these situations can lead to a long ineligibility period.
Consult an Elder Law Attorney
Here's the bottom line. Before giving away assets or property, check with an elder law attorney to ensure that it won't affect anyone's Medicaid eligibility. The lookback period is five years and not a day less, and there is a critical difference between federal gift tax and Medicaid asset transfer rules.
If you have a question about asset planning, maximizing a legacy to your children or loved ones, and avoiding losing your life savings to pay for a nursing home, please call us to make an appointment and we will be happy to help.