With the holiday season upon us, now is the time that many people make sizable cash gifts to children, grandchildren, and other loved ones. They have often heard there may be tax consequences to making gifts, so they check with their accountant first. Their accountant may have even told them making cash gifts during their lifetime made good tax sense. But they forget to consult an elder law attorney. This omission can be costly because it can cause major repercussions months or even years down the road.
Under current IRS regulations, you can gift up to $14,000 per person per year without having to file a gift tax return. So long as your total gifts to one individual over the year total less than or equal to $14,000, the gift has no tax consequence to you. Ok, so far, so good. Many people who want to be generous to their families, and perhaps reduce any estate tax on their deaths, choose to make these types of lifetime gifts.
Unfortunately, IRS rules only address gift giving from a tax angle…
But what if you make a gift and then get sick- perhaps sick enough to require long term nursing home care? Those gifts you made can cause you to be disqualified from receiving vital MassHealth (Medicaid) benefits for a period of five years from the date of the gift. Even smaller monetary gifts much less than $14,000 a year can affect your future MassHealth eligibility!
Five years is a long time. And with nursing homes routinely costing in excess of $12,000 per month, getting disqualified from MassHealth can be immensely costly to you. Running out of money paying for nursing home care can take a surprisingly short amount of time, which makes eligibility for MassHealth benefits desperately important.
On this point our clients protest “how can that be so . . . the IRS says gifts are fine and my accountant told me to do it.” Put simply, MassHealth does not give a darn what the IRS allows you to gift. They are different agencies with vastly different regulations, serving different purposes.
Your accountant did not intend you any harm. Instead, like most folks, your accountant probably had no idea about the potential MassHealth consequences of gifting and was thinking only of potential tax benefits to you.
Does this mean you cannot ever make big gifts? Not necessarily. But we advise that clients retain a qualified elder law attorney before making sizable gifts so that they can confirm both the tax and MassHealth consequences of making gifts and take steps to minimize their risks.
(Patrick G. Curley is a Certified Elder Law Attorney, is selected to MA Super Lawyers, and serves as a member of the Board of Directors of the MA Chapter of the National Academy of Elder Law Attorneys. He practices law at Curley Law Firm LLP at 1 Common Street in Wakefield. Do you have an Elder Law or Estate Planning question? E-mail questions to Info@CurleyLawFirm.com or call 781.245.2222 x10 to be considered for future columns)