Gifting and the 2018 Gift and Estate Tax Exclusion Numbers

Q. Our daughter got married a few months ago and she and her husband found the perfect starter home in Springfield. The owners accepted their offer and my daughter and her husband asked me for $20,000 to help with the down payment. Last year, I gave them $14,000 to buy a car, and the previous year, they wanted $3,000 to go to the Bahamas for a week. Since I have given them the money they needed in the past, it seems they have come to expect it (something I’d like to put an end to!) I also have a history of giving small monthly gifts to the animal shelter and to St. Jude. If I end up requiring nursing home care in the future (which of course could be possible), would I be penalized for the gifts I have given to my daughter and her husband and for the recurring donations to the animal shelter and St. Jude?

A. Congratulations to your daughter and her husband on their marriage and on the pending purchase of their new home. To answer your question, when it comes to Medicaid eligibility, YES, you would be penalized for your gifts to your daughter and her husband.

Gift giving can be a risky venture for people who may need Medicaid coverage within five years. Medicaid presumes that all gifts made in the five years prior to filing for Medicaid were made in contemplation of applying for Medicaid. Individuals seeking eligibility for long-term care Medicaid benefits must disclose all gifts made by the individual or his or her spouse within the prior five years.

If someone has a history of giving small weekly or monthly gifts to a charity, as you do, most Medicaid offices will not construe those to be disqualifying gifts. For instance, in Virginia, these types of regular gifts are not penalized so long as they are under $4,000 per year and there was a regular pattern of making this gift for several  years prior to applying for Medicaid.

Recently, Next Avenue published an article about strategies for financial gifts to grown kids, which included familial strategies that you may find helpful for gifting money to your daughter and her husband, as follows:

1. Keep it irregular. Vary the time of year you send checks, and don’t send them every year.
2. Don’t always give money directly. There are various ways to assist your daughter and her husband indirectly. These include paying their uninsured medical expenses, providing cash for a home remodeling contractor’s fees, and covering some expenses for a first baby, if and when the time comes (such as a stroller, a car seat, a crib, or a year’s supply of diapers). Varying your assistance and not giving money directly tends to make gifts unexpected and more appreciated, instead of something recipients come to expect.
3. Confine your help to rare occasions. For example, expenses for key anniversaries or birthdays could qualify. After all, how often does your daughter have a wedding anniversary or a 30th birthday? Another irregular impetus would be the need for plane fare and lodging to attend family reunions, assuming these events aren’t annual or bi-annual.

Does the potential risk of a Medicaid penalty suggest that all giving should cease? Not necessarily. However, those who may need nursing home care within the next five to ten years must weigh the joy of giving against the potential cost of losing much-needed Medicaid benefits.

For more information about gifting and Medicaid eligibility, read “Medicaid: The Perils of Gifting FAQ” on our website. Please call us to make an appointment for a no-cost consultation to discuss planning for long-term care.

Q2. Also, on the topic of gifting, my husband and I would like to make gifts to the Alzheimer’s Association and are not sure if we should do so this year (in 2017) or next. What are the new gift and estate tax exclusion numbers for 2018 and how do they compare to the current ones? If we do start making gifts, should we update our estate planning and, if so, how often?

A2. The IRS recently released the gift and estate tax exclusion amounts for 2018. The annual gift exclusion amount is $15,000 for 2018—up from $14,000 where it’s been stuck since 2013. In other words, in 2017 you can gift up to $14,000 per person, per year, without having to report the gift, whereas in 2018 you can give up to $15,000 per person, per year, without having to report the gift. The annual exclusion amount is indexed for inflation but can only increase in $1,000 increments.

These gifts are referred to as annual exclusion gifts and are not subject to the federal gift tax at all and therefore do not use any of your lifetime exemption from gift or estate taxes. Gifts over $15,000 per person, per year, are completely legal; they simply use up part of the giver’s lifetime gift tax exemption, which is meaningless for most people because the lifetime exemption is being increased in 2018 to $5.6 million for an individual ($11.2 million dollars for a married couple), which means that gift tax never gets paid by 99.8% of the population. However, always beware of making lifetime gifts if you are over the age of 65 —  read the Perils of Gifting webpage on our website for more details.

The new inflation adjusted numbers are available here.

Tax Laws and Medicaid Rules Change Frequently

With all of the frequent changes that take place in the tax laws, and even more frequent changes in Medicaid rules, I recommend that everyone should revisit their estate plans every year. The Farr Law Firm’s Lifetime Protection Program ensures that your documents are properly reviewed and updated as needed, so that they will have the proper effect under the law.

As always, if you or a loved one is nearing the need for personal care or already receiving personal care, or if you have not done Long-Term Care Planning, Estate Planning or Incapacity Planning (or had your Planning documents reviewed in the past several years), please call us to make an appointment for an initial no-cost consultation:

Fairfax Elder Law Attorney: 703-691-1888
Fredericksburg Elder Law Attorney: 540-479-1435
Rockville Elder Law Attorney: 301-519-8041
DC Elder Law Attorney: 202-587-2797

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