Charitable Giving: The Risks of Generosity

Christmas package with festive Background

Q. My granddaughter, Abigail, recently got married and my husband and I would like to give her a gift of $14,000 before the end of the year to put towards a down payment on their first home. To be fair, we also want to give the same amount to our grandson, Robert, for some remodeling work in his home. My husband, Murray, is 82 years old and has several health ailments, including high blood pressure, diabetes, and mild cognitive impairment. If his health suddenly declines and if he requires nursing home care next year and we would like to try and qualify for Medicaid, would he be penalized for the gifts we give to our granddaughter and grandson?

We also give small gifts to the animal shelter every month. Would we be penalized for these gifts, even though we’ve been making them for years?

A. Presumably you have chosen the amount of $14,000 because that is the amount the Federal Gift and Estate Tax laws allow you to give per year to anyone you want without having to file a gift tax return.  Under IRS rules, you and your spouse may each give an unlimited number of these $14,000 gifts per year without having to file a gift tax return.  So, for example, if you have 4 children and 2 grandchildren, you and your husband could give away up to $168,000 each year ($28,000 x 6).  However, even though the Federal Gift Tax laws allow you to give away up to $14,000 per year ($28,000 for a married couple) to as many people as you wish without gift tax consequences, Medicaid laws still apply to these gifts, meaning that these gifts will result in a penalty period — a period of ineligibility for Medicaid should either of you need nursing home care in the next 5 years. The length of the penalty period is determined by the penalty divisor(s) in each state. Below is a list for our area:

Penalty Divisors (as of 7/8/2016):

Northern Virginia:  $8,367
Rest of Virginia: $5,933
DC:  $10,333.00
MD:  $7,940.00

So, your $168,000 gift would result in the following periods of ineligibility for Medicaid:

Northern Virginia:  $168,000 / $8,367 = over 20 months
Rest of Virginia: $168,000 / $5,933 = over 28 months
DC:  $168,000 / $10,333.00 = over 16 months
MD:  $168,000 / $7,940.00 = over 21 months

Why does this happen? Medicaid presumes that all gifts made in the 5 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 5 years. And, even if it’s not the case, Medicaid will likely presume that the gifts made within 5 years of the eligibility request date were made in order to qualify for benefits.

However, if you have a history of giving small weekly or monthly gifts to a charity, some 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 3 years prior to applying for Medicaid.

Does this 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 details about this, please see our resource page, “Medicaid: The Perils of Gifting FAQ.”

Q2. My niece Bonnie mentioned at Christmas that she would like to give to a charity, since it’s the end of the year, and she is feeling charitable and is interested in taking a tax deduction. She is only 50 and in good health, but has been vulnerable to scams in the past. What should she watch out for? Thanks for your help!

It is very kind of your niece to want to give to charity. Unfortunately, all too frequently, kind generous souls can be the victims of charitable fraud. Please share the following tips with her from Charity Navigator, to help ensure that she contributes only to legitimate and efficient charities.

  • Don’t succumb to pressure tactics. Well-run charities don’t use pressure tactics to garner support for their mission. They don’t have to. Their good work and financial health speaks for itself.
  • Do not feel compelled to give because you received a gift. Just because you received some mailing labels, cards or an umbrella, that doesn’t mean you’re required to reciprocate with a donation. Be especially wary of sweepstakes that require a contribution to enter. Again, a reputable charity doesn’t need to employ such inefficient and deceptive fundraising tactics.
  • Be careful of imposters. Scam artists often use sound-alike names to trick you into thinking they represent a legitimate charity.
  • Hang up the phone. Ask the fundraiser to send you written information about the charity they represent, then hang up the phone and do some research on your own.
  • Make sure that your donation is tax-deductible. Before giving a donation to any organization, make sure it is a 501(c)(3) charity. That means the group has filed paperwork with the Internal Revenue Service (IRS), registering it as a U.S. nonprofit and enabling its contributors to take a tax-deduction for their gifts. A quick way to confirm the organization’s status is to check with Charity Navigator (, where all 501(c)(3) charities are listed.
  • Research the charity before you give. Take a look at the organization’s rating on Charity Navigator to give you an indication of how much of the organization’s income goes towards programs and services. However, do note that smaller charities, such as the one that I founded (ROSE — Reiki Outreach Services for Elders, Inc.) may not have a rating, because they are not required to file the comprehensive tax forms required by larger organizations.
  • Send your donation directly to the charity. Never divulge your personal or credit card information to those initiating contact. Once you’ve done your research, send your contribution directly to the charity you wish to support. Don’t send cash as it can be lost or stolen. Also, you’ll want to have paid by check or credit card so you have a receipt of your donation when it comes time to take the tax-deduction.
  • Tell the charity not to share your personal information. When you send a charity a small donation – say $10 or $25 – there is a chance that the organization will sell or trade your contact information with other charities. The next thing you know, your mailbox may be overflowing with solicitations. Often older Americans get caught up in this vicious cycle because they respond with a small donation to each new appeal full of heartbreaking photos. To prevent this from happening, tell the charity upfront that you do not want it to share your personal information with any other entity.

Again, if she chooses to give charity, small monthly gifts on a regular basis to a reputable charity may be a good way to go! Hope this is helpful!

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 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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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.

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