How Gifting Affects Medicade

Q: Hello Jeff!

An elderly couple has a home with a mortgage on it and a savings of about $50,000. Because of the spousal impoverishment act one of them is now a medicaid recipient and soon this couple might move into an assisted living situation. If someone is on medicaid or going into medicaid how much can they gift their chidren without tax implication. How far back does the government look... as far as gifting assets to family. Is it better to gift if you can when you have been using the community services and possibly will need to pay back out of the estate (if any left) for the expenses which were covered by medicaid? If the children inherit the house , it seems that medicaid says they will ask for payback on their expenses for that medicaid recipient, how often does that actually happen?

As we get older I certainly will want to transfer some of our assets (if any! Ha Ha!) to my children before I get closer to possible death (I know people live longer and who knows when we are going to die, could be tomorrow!) I heard that the transfer that might be looked at within 5 years prior to death is that correct?

And when there is gifting does the recipient pay taxes on that gift?

A: Medicaid looks back 5 years to see if any gifts have been made. The fact that one is already on Medicaid will also make this more difficult. So there’s probably not much you can do. If the house is sold, the non-Medicaid’s spouses’ portion might be gifted but would then need to wait for 5 years. It doesn’t sound like there would be enough assets to cover the cost of assisted living for a 5-year period.

On gifts, gift taxes are born by the giver, on the sale of the asset the receiver is responsible for income taxes based on the cost basis of the giver.

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