Can Making a Gift Before Applying to Medicaid Save Assets
Making a gift before applying to Medicaid is a possible avenue to take in order to reduce assets, but it will not necessarily save assets for applicants. There are many other tools and strategies that can be used in Medicaid planning such as trusts, life estates, and pooled income trusts, among others. Making a gift is one strategy whose efficacy will largely depend on a person’s individual circumstances. Also, given Medicaid’s exacting eligibility limits, it is extremely important that a prospective applicant who wishes to make a gift to reduce assets does so in strict adherence to Medicaid’s look back period. Utilizing gifts as a component of Medicaid planning can be highly complex and requires the expertise of a qualified elder law attorney. At Morgan Legal Group, P.C., our elder law attorneys are well-versed in Medicaid planning strategies as well as the different policies governing the program’s eligibility requirements. Although making lifetime gifts may not necessarily save assets, it is a channel that can be used to fall within Medicaid’s asset limit and qualify for the program, if properly implemented. Our elder law attorneys can assist with making the most of lifetime gifts.
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If you are considering making a gift before applying to Medicaid, first reach out the elder law attorneys at Morgan Legal Group, P.C. We have a wide range of knowledge in different Medicaid planning strategies and can ensure that your lifetime gift plans are Medicaid compliant.
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Making a gift is one of the more unique tools available within financial planning. What sets lifetime gifts apart from other planning options is that there is no repayment or profit involved when making a gift. Essentially, making a gift means that you give something of value without receiving any value in return. For instance, a grandparent who gifts a grandchild $12,000 to help with college tuition would not make any profits from such a gift nor would they expect their grandchild to repay money later on. Lifetime gifts can come in the form of money as in the previous example, as well as assets or property. However, it is important to note that the larger the value of a gift, the more tax implications may be involved. One tax consideration to look at is the annual tax exemption rule which allows for gifts valued at $15,000 or less to be exempt from gift taxes but requires that a gift tax return to be filed for anything above that amount. On a larger scale, there is also a lifetime gift exclusion which sets a limit of $11.7 million to be excluded from taxes.
The annual tax exemption rule or lifetime gift exclusions all have to do with rules within tax laws. They have no relation to Medicaid or the program’s regulations. Being exempt from gift taxes does not equal exemption from an eligibility penalty from Medicaid. Medicaid has its own set of statutes that govern how making a gift can affect eligibility. When it comes to Medicaid, a gift is considered to be any transfer of assets for less than their fair market value made within five years prior to the submission of a Medicaid application or the look back period. This is a broad definition that can include paying for a grandchild’s college tuition, financing a down payment for a family member’s house, or even donating to a charity. Any gifts made within Medicaid’s look back period will be counted towards an applicant’s asset limit and may possibly incur a penalty period.
Making a gift is like any other financial planning tool in that its effectiveness is largely determined by the individual, their specific financial circumstances, as well as their goals and objectives. Making a gift allows an individual to decide directly where their funds or assets will go as opposed to having them used to pay off taxes or outstanding debts. Once a gift is made, an individual effectively relinquishes all ownership over the gift, be it money, assets or property. Therefore, the gift cannot be reached by creditors or other entities because it now belongs to someone else.
Because Medicaid has strict eligibility requirements, many people who wish to apply to the program find that they exceed Medicaid’s asset limit and must spend down in order to qualify. Although it is a federal program, Medicaid’s eligibility requisites are administered differently in each state. In New York, Medicaid’s asset limit is set at $15,900 for those applying to institutional Medicaid or a Home and Community Based Services Waiver. If it is appropriate, making a gift is one pathway that can be used to reduce countable assets. Giving away money, assets, or property means that they now belong to the person who receives them. As such, they cannot be counted towards an applicant’s asset limit. However, it is crucial that any gifts be made at least 5 years prior to the date an application is made. Any asset transfers made within those 5 years can result in an applicant being denied Medicaid benefits for a period.
One of the most common mistakes people make when creating a special needs trust is procrastination. This is especially true for parents of children who are born with disabilities. Setting up a trust early in the child’s life allows for contributions and gifts to accumulate and grow throughout the years without penalties. Another mistake is trying to set up a special needs trust without legal assistance. There are a lot of “DIY” tutorials available, but unless a person specializes in New York law, government programs, and public benefits, there is a wide margin of error that can occur and result in a disabled person being left out of critical benefits. Failing to make a special needs trust irrevocable is one more mistake that is quite common. This is particularly true for self-settled special needs trusts. A trust that is revocable can be considered an asset under certain government programs. As such, they can be counted against an individual’s asset threshold, making them ineligible for certain programs and benefits.
A special needs trust is designed, in part, to keep others from taking advantage of someone with a disability. However, even within the sound legal structure of a trust, misuse of funds can still occur. In order to prevent this from happening, the trustor needs to ensure that specific instructions are included in the trust document with regards to how the funds are to be managed and administered. Another important preventative measure is to designate a trustee that is reliable and who will oversee the trust with integrity and honesty.
At Morgan Legal Group, P.C., we handle estate planning as well as the creation of special needs plans and trusts. We understand that for many families, estate planning and special needs planning go hand in hand. This is why, in addition to their extensive knowledge of the best estate planning practices, our attorneys specialize in the laws, programs, and benefits for individuals with disabilities.