Takeaways
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Gifts to children may impact long-term care Medicaid eligibility, if applying for the program within five years of the gift(s).
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The IRS gift tax exclusion and Medicaid's asset transfer rules are separate rules. Thus, while a gift may be exempt from a gift tax, that same gift may still negatively affect long-term Medicaid eligibility.
If you wish to gift money to your children, it is important to carefully consider the potential consequences to you, prior to deciding whether to make the gift. It is specifically important to understand and consider the potential consequences that you may face, if you apply for long-term care Medicaid coverage within five years (the "look-back" period) after each gift. Gifts made during the look-back period, which are determined to be non-allowable under the applicable long-term care Medicaid eligibility rules, will trigger a penalty period (also known as a period of ineligibility).
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 will pay a gift tax. You will 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 long-term care Medicaid coverage, your assets cannot exceed the countable resource limit. In Illinois, the current countable resource limit for the long-term care Medicaid applicant is $17,500. The countable resource limit varies from state to state. As such, it is important to determine the countable resource limit in your state.
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 the look-back period (which is currently within five years of applying for Medicaid) and if the transfer does not fit within one of the exceptions, you will face a penalty that renders you ineligible for the program for a period of time.
So What Does the Gift Tax Exclusion Have to Do With Medicaid?
The short answer is nothing -- the IRS gift tax rules ONLY apply to the tax impact and have NO bearing on long-term care Medicaid eligibility. Many people, mistakenly, 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.
Again, this is NOT the case. The gift tax exclusion is solely 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.
To learn more about how gifting may impact you including, but not limited to: the potential consequences if you then need to apply for long-term care Medicaid coverage, within the look-back period; whether a proposed gift fits within one of the exceptions to the transfer penalty rules under the Medicaid eligibility rules; etc., either consult with your elder law attorney or reach out to our office. Seeking advice, prior to gifting, from an attorney that is knowledgeable about the long-term care Medicaid eligibility rules is strongly recommended.