Should You Keep Making $13,000 Donations to Qualify for Medicaid?
From time to time I get the question, "Paul, should we transfer $13,000 a year to our children so that we can protect assets in case we have to go into the nursing home?" I always get a little queasy when I hear that question because really you are referring to some gift in estate tax rules but attempting to protect assets in the event you go into the nursing home. Two completely different things. Sure, our tax laws say you can give $13,000 a year to as many people as you want to every year and you never start using some of your $5 million or $1million estate tax exemption. But from a medicaid standpoint, if you really want to get stuff out of your name you need to do it in one big chunk. You need to get it out of your name but we don't typically suggest you give it to your children. You can put it in a trust for them so you can control it. But everytime you make additional transfers it starts a new 5 year clock running. So the general concept with medicaid is make a large transfer and then don't make any more transfers. That way five years after that initial large transfer, all those transferred assets will be protected. But if you keep making $13,000 transfers you keep starting that five year clock over and over again and the five year clock never runs out and you never really protect the assets from nursing home costs. So be aware these are two different things. There's the $13,000 tax rule (by the way, gifts, regardless of their size are not subject to income tax to anyone. It's a gift in estate tax rule) and then there's the different rule for the transfers for nursing home protection. I'm Paul Rabalais and have a great day!