Gifts and the Five-Year Lookback

I often hear from clients that they “have made gifts in the last five years – but it’s ok, they were all less than $14,000 so they won’t count under the five-year lookback – right?”

Unfortunately, that’s simply not the case. While it IS true that you can give up to $14,000 per year (as of 2014), per recipient without paying a gift tax for federal income tax purposes, MassHealth (Medicaid) views the situation very differently. Should you need a nursing home and ask the state to help pay for your care, any gifts you have made within the last five years will be scrutinized and will render you ineligible from receiving MassHealth assistance in paying for your nursing home care until the amount of the gift(s) is paid back.

In fact, any asset transferred for less than fair market value will be scrutinized and can potentially disqualify you from MassHealth assistance. For example, if you sell your son-in-law your $20,000 Mercedes for $1,000, or add your children’s names to the deed on your house (and they didn’t pay you fair market value), MassHealth will view these transactions as assets transferred for less than fair market value.

How does the disqualification work? Let’s say in the last 5 years you have gifted $50,000 in assets. You will be disqualified from MassHealth assistance for $50,000 worth of care – and the disqualification only begins to toll once you have spent down your other assets to the allowable $2,000. In other words, you will pay privately for your care until you have just $2,000 in the bank, then you’re responsible for the $50,000. But now you only have $2,000 left – so who pays it? Either the recipients can return the gifts to “cure the defect,” or someone else – likely a spouse or child, will have to foot the bill for the next $50,000. Then and only then will you be eligible for MassHealth assistance. This is a scary prospect, for you and your family alike!

Of course, there are exceptions to the no-gifting rule. You may always transfer assets to your spouse. Likewise, if your child has been living in your home and taking care of you for two years, you may be able to transfer your home to the caretaker child without penalty. You may also be able to transfer assets to a special needs trust or pooled trust for a disabled child, though you should consult with an elder law attorney before making any transfers in the latter two of these scenarios.

Gifting to your family and loved ones during your lifetime can be a wonderful, helpful, and rewarding thing. Before making any gifts, however, you should consult with a trusted financial professional, an elder law attorney, or better yet, both. If you’re wondering if giving gifts during your lifetime is plausible in your situation, don’t hesitate to contact our office to set up an appointment.