Handing things down may be no gift at all

For about 45 of the past 50 years Americans have been conditioned to believe that it is possible to give away a certain amount of money “tax free” every year to anyone they wish. It is commonly thought that any gift above this certain amount is taxed, and, therefore, to be avoided. All of this has added up to an impression that it is advisable to give away up to $14,000 per family member, $28,000 if given by a married couple, in order to avoid the dreaded “Estate Tax Consequences” of dying. This, combined with the natural urge to help the next generation and hand down the things with the most valuable to us, has created an impression among seniors that the day will come when it is time to start passing things along. What people do not realize is that in today’s senior care environment, this is a trap for unwary!

Many people are shocked to learn that any gift made to a family member during the five year period preceding an application for nursing home benefits under the Medicaid program will be presumed to be a gift made to qualify for Medicaid and result in a penalty. This rule has NOTHING to do with the tax laws. In 2014 Texas, this means that for every $156.34 that is given to family during the five years before a nursing home admission, the family will have to find a way to pay for care for a day of penalty even though the patient may be poor and unable to pay. A gift of $14,000 translates to at least 90 days of eligibility penalty. This penalty applies to all transfers, not just money.

In today’s evolving senior care environment, where people live longer and linger, the old ways of understanding wealth transfer must change. What was once the good “tax planning” practice of handing things down may very well cause more headaches than solutions for the entire family.

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