Takeaways
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Gifting money to children is permissible, but it may impact Medicaid long-term care eligibility if apply for the program within five years of the gift.
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The IRS gift tax exclusion and Medicaid's asset transfer rules are separate. However, gifts exempt from gift tax may still affect Medicaid eligibility.
If you have money to give your children, you certainly can, but you should be aware that you may face consequences should you apply for Medicaid long-term care coverage within five years after each gift.
In 2025, you can give up to $19,000 to any one individual and not have to report the gift to the Internal Revenue Service (IRS). This $19,000 figure is the amount of the current gift tax exclusion. You can give this amount to as many people as you like.
If you give away more than $19,000 to any one person in a single year (other than your spouse), you will have to file a gift tax return. However, this does not necessarily mean you’ll pay a gift tax. You’ll have to pay a tax only if your reportable gifts total more than $13.99 million (in 2025) during your lifetime. This figure is the lifetime gift and estate tax exemption.
Applying for Medicaid
Medicaid is a joint federal-state program that helps seniors and people with disabilities across the United States pay for their health care costs, which may include long-term care services. The program specifically seeks to support those with extremely limited means. To be eligible for Medicaid in most states, you must therefore have no more than $2,000 in assets (or $3,000 for a married couple).
Many older adults end up relying on Medicaid’s long-term care benefits when they can no longer safely live at home and find that they need to move to a nursing home or similar facility. To qualify for Medicaid coverage of long-term care, however, you may need to drastically spend down your income and savings to reach the asset limit set by your state's Medicaid agency.
Medicaid allows you to "spend down" on specific types of expenditures. These include prepaying for your funeral services or paying off your medical bills. The catch, however, is that if you transfer your money or property within five years of applying for Medicaid (with certain exceptions), you will face a penalty that renders you ineligible for the program a period of time.
So What Does the Gift Tax Exclusion Have to Do With Medicaid?
Many people believe that if they give away an amount equal to the current $19,000 annual gift tax exclusion, this gift will be exempt from Medicaid’s five-year lookback at transfers that could trigger a waiting period for benefits; however, this is not the case.
The gift tax exclusion is an IRS rule, and this IRS rule has nothing to do with Medicaid’s asset transfer rules.
While the $19,000 that you may have given to your child or grandchild this year will be exempt from any gift tax, Medicaid will still count it as a transfer that could make you ineligible for nursing home benefits for a certain amount of time should you apply for them within the next five years. You may be able to argue that the gift was not made to qualify you for Medicaid, but proving that will certainly be an uphill battle.
Work with an Elder Law Attorney
If you think there is a chance you will need Medicaid coverage of long-term care in the foreseeable future, speak with an experienced elder law attorney near you before starting a gifting plan.
For further relevant reading on qualifying for Medicaid, check out the following articles: