Many people use the holidays as a chance to do some informal estate planning by using the Federal Estate and Gift tax annual exclusion as a guideline for writing checks to their children and grandchildren. It seems like a win-win for everyone. Mom and Dad get to feel good that they are passing on some wellbeing to their adult children and their families. The kids get the money with no guilt that any taxes will be collected from them or their parents on the gift. It is a tradition as old as the per donee annual exclusion and people from stockbrokers, to bankers, to tax planners, all support the practice.
So, why is this article entitled, “Should you cash Dad’s check?”
In Texas, Gifts or transfers made to family members within 60 months of an application for Nursing Home Medicaid benefits will be assessed an eligibility penalty currently at the rate of 1 day without benefits for every $156.34 that was given away. This penalty has nothing to do with whether the Federal Government is going to levy a tax on the gift. The gift may be tax free, but it is not free from other problems.
Fortunately, gifts that have been given can be returned in kind to eliminate this penalty. So, if your parents are elderly and/or may reasonably need care in the next 60 months, you should think twice before you cash the check. And, if you have cashed the check, you may consider keeping the money in savings for the next 60 months. You, and your parents, will be glad in the long run.