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Financial Gifts to Children

A stack of money with a bow wrapped around it

After her 73 year old husband, Harold, suffers a paralyzing stroke, Mildred and her daughter, Joan, need advice. Dark circles have formed under Mildred’s eyes. Her hair is disheveled. Joan holds her hand.

“The doctor says Harold needs long-term care in a nursing home,” Mildred says. “I have some money in savings, but not enough. I don’t want to lose my house and all our hard-earned money. I don’t know what to do.”

Joan has heard about Medicaid benefits for nursing homes, but doesn’t want her mother left destitute in order for Harold to qualify for them. Joan wants to ensure that her father’s medical needs are met, but she also wants to preserve Mildred’s assets.

“Can’t Mom just give her money to me as a gift?” she asks. “Can’t she give away $14,000 per year? I could keep the money for her so she doesn’t lose it when Dad applies for Medicaid.”

Joan has confused federal Gift Tax law with the issue of transfers and Medicaid eligibility. A “gift” to a child in this case is actually a transfer, and Medicaid has very specific rules about transfers.

At the time Harold applies for Medicaid, the state will “look back” five years to see if any gifts have been made. The state won’t let you just give away your money or your property to qualify for Medicaid. Any gifts or transfers for less than fair market value that are uncovered in the look-back period will cause a delay in Harold’s eligibility for Medicaid.

For example, each $14,000 gift made during the three years prior to a Medicaid application creates a two month period of ineligibility in Florida.

So what can Harold and Mildred do? They can institute a plan, save a good portion of their estate, and still qualify for Medicaid. The plan may involve transfers of money for value received, such as a care contract, and it may involve gifts. However, as we stated above, the gifts must not violate the federal law or the Medicaid rules. Generally, if done properly, you can often save as much as one half of your assets or more this way.

But remember, when it’s given away, it’s given away. Studies have shown that “windfall” money received by gift, prize or lawsuit settlement is often gone within three years. In other words, even when the children promise that money will be available when needed, their own “emergencies” may make them spend the money. You must consult a knowledgeable advisor on how to set a plan that complies with the law and achieves your goals.

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