“Doesn’t Medicaid allow me to give away $14,000 a year tax free?”

“Doesn’t Medicaid allow me to give away $14,000 a year tax free?”

"Doesn't Medicaid allow me to give away $14,000 a year tax free?"No — the $14,000 a year is what the IRS says you can give away without having to file a “gift tax return” so the gift of $14,000 a year doesn’t, in effect, count against your lifetime limit of over $5,000,000 that you can give away or leave as an inheritance.


This has nothing to do with the rules Alabama Medicaid has on gifts.

What’s the big deal about gifts under Medicaid?

We discuss this in depth in other articles on the “look back” and “penalty” periods but here it is in a nutshell.  If you apply for — and qualify for — Alabama Medicaid, then Medicaid looks

back 5 years.

You show Medicaid your financial/property/etc transactions over the last 60 months.

If there are any gifts — where you get nothing or less than fair market value — then Medicaid totals up those gifts.

Then takes the total and divides it by $5,800.

This number is the number of months you have to privately pay without any help from Medicaid.

So if you gave away $14,000 a year to your five kids for the last two years, this is a total of gifts in the amount $140,000.

Take $140,000 and divide it by $5,800 and you get a penalty period where you have to privately pay of about 24-25 months.

I don’t understand as my CPA says I’m always allowed to give away $14,000 a year to my kids or anyone else I want to give money to.

The tax rules and Medicaid rules are completely different rules.

Do be careful that you get the right advice from the right advisors.

Can’t I pick which set of rules I want to follow?

Yes, in essence, you can.  You can give away money and then either not use Medicaid or make sure when you give away assets that you have a plan and strategy in place for how to pay for long term care.

So is it wrong to give away $14,000 a year to each child?

Nope — and I’m sure your kids love it!  And you enjoy the good feelings that come from giving a gift.

So definitely not wrong — although you want to make sure you give the money in a way that helps and doesn’t hurt your children — but you have to be aware of the consequences and have a strategy in place.

What would be a good strategy?

Here are some examples that work for some people depending on their unique circumstances:

  • The gifts are to a proper type of trust to protect the money but still benefit your children;
  • You have enough set aside so that you can pay through any penalty period after qualifying for Medicaid;
  • You have money or long term care or use VA Pension (Aid & Attendance) to pay for your nursing home care until you are beyond 5 years which is the “look back” period; or
  • You use the proper type of Medicaid compliant annuity to pay for your cost of care.

These are simply some of the many strategies that we use to help families all across Alabama plan for, and pay for, long term care so that decades of work is not wiped out in a few years in a nursing home.

So what should I do if I have questions?

If you (or your parents) live in Alabama, feel free to give us a call at 205-879-2447.  We have an office in Birmingham and also in the Huntsville area where we can meet you.  If you live elsewhere we can make that work also as we represent families from all over the state.

You can also fill out our online contact form and that will get a message to us and we’ll respond to you right away.  Either way, we look forward to helping you plan for your long term care.

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