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Elder Law Book: Take Caution Before Making Gifts

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Salvatore M. Di Costanzo, Esq.

By Salvatore M. Di Costanzo, Esq.

For 2017, the federal lifetime estate and gift tax exemption has increased to $5,490,000. This means that you can gift this amount over your lifetime without incurring a federal gift-tax and to the extent you haven’t done so, any exemption remaining at death can be applied against the value of your estate for federal estate tax purposes. Very few people are subjected to the federal estate and gift tax under the current law.

Currently, the New York estate tax exemption is $5,250,000. Beginning January 1, 2019, the New York estate tax exemption will mirror the federal estate and gift tax exemption.

For federal gift tax purposes, an individual can make annual gifts to any person other than a spouse in the amount of $14,000.00 per person. These gifts do not reduce your lifetime exemption. The annual exclusion is above and beyond the lifetime exemption. However, if your estate is not valued at more than $5,490,000, then the annual exclusion is irrelevant to you. Thus, and often to the surprise of clients, if your estate is valued at less than $5,490,000, you can gift away your entire estate during your lifetime and pay no federal gift taxes. In addition, your heirs will not have to pay any taxes on the gift either. There is no gift tax in New York; however gifts made within three years of death are added back to your New York gross taxable estate.

Many people confuse federal and State tax laws with the Medicaid rules. If an individual is applying for nursing home Medicaid, Any amount gifted by the individual during the five years prior to applying for Medicaid may create a penalty for Medicaid eligibility purposes. The federal annual gift tax exclusion of $14,000 is not an annual exclusion for Medicaid purposes.   Often, people make gifts each year equal to the annual exclusion amount under the theory that they are reducing their assets in case nursing home care is required in the future; this is wrong!

It is important to note that in home care cases, there is no five-year look-back period. Thus, prior gift giving will not impact Medicaid eligibility in a home care scenario. The dichotomy in Medicaid gift giving rules only applies to nursing home cases.

Often, gifts are made by family members for very common purposes such as paying for a grandchild’s college education, assisting a financially troubled child, or charitable donations. Regardless of the amount, these are all gifts for purposes of determining Medicaid eligibility for nursing home care. The result is that many individuals are denied nursing home Medicaid eligibility for making every day (and necessary) gifts during the look back period.

In the recent past, we have seen through case law instances where applicants have been successful in arguing that gifts made during the look back period were for purposes other than to qualify for Medicaid and therefore, eligible for nursing home Medicaid. In making such determination, DSS will consider things such as (i) the physical and mental condition of the applicant at the time of the gift (ii) the use of the gifted funds, (iii) whether the applicant gifted his/her own funds or funds that were received through inheritance or a windfall, (iv) whether the applicant lived independently in the community when the gifts were made (v) the financial security of the applicant, (vi) the time that elapsed between the gifting and the applicant’s institutionalization and (vii) whether the applicant had considered institutionalized care when the gifts were made.

Given the economic environment, it has been increasingly common for me to encounter situations where gifts have been made by applicants to their children or grandchildren during the look back period predicated on misapplying federal and State tax laws to Medicaid eligibility rules. Prior to making gifts, the advice of an elder law attorney should be sought. If already at the stage of applying for Medicaid, the intervention of a skilled elder law attorney who can craft a proper argument to avoid being denied Medicaid eligibility is critical.


Salvatore M. Di Costanzo is a partner with the firm of Maker, Fragale & Di Costanzo, LLP located in Rye and Yorktown Heights. Salvatore is an attorney and accountant whose main area of practice is elder law and special needs planning which consists of estate planning, wills, trusts, probate and administration of estates, Medicaid planning, asset preservation, nursing home and home care planning and planning for individuals with special needs,

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