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As part of an Estate and Medicaid planning consultation, I routinely ask Clients if any gifts have been made. Often the answer to this question is yes. However, when I start to explain Medicaid transfer rules, and how certain gifts are considered improper transfers for Medicaid purposes, Clients often comment that the gifts are not improper transfers because they are "legal" gifts. It appears that the IRS rules that state a person can make gifts up to $12,000 per person per year are common knowledge to much of the general public. However, what these IRS rules represent and how they relate to Medicaid planning are often misunderstood and misinterpreted. The best way to avoid confusion is to realize there are two separate tracks that relate to gifting. There is the well known Gift Tax Track, and the less well known Medicaid Track. While these tracks can be related in planning, they do not cross and are two completely independent systems with their own rules and regulations.

The Gift Tax Track: IRS rules state that an individual may make gifts of $12,000 or less per person per year without these gifts counting for gift tax purposes. (The $12,000 exemption is not a fixed amount, but varies year to year. $12,000 is the current exemption for 2006.) Gifts over the $12,000 per person exemption will require that a gift tax return is filed with the IRS, and tax may be due in the future. (When gift tax is due and how gift tax is calculated is outside the scope of this article.) As an example, Mr. Trump can give 100 people a gift of $11,750 and pay no gift tax on those gifts currently or at any time in the future.

The Medicaid Track: We must keep in mind that Medicaid has its own set of rules that involve gifting. A person who is attempting to qualify for Medicaid has a look back period of five years for any gifts made. Any gifts made during this five year period are considered improper transfers and Medicaid assesses a penalty. It is immaterial if the gift amount is over or under the IRS gift tax amount. To revisit Mr. Trump, while he was able to give $11,750 to 100 people under the IRS rules, that same gift under Medicaid rules would result with an improper transfer of $1,750,000 and would leave him unable to qualify for Medicaid for approximately 19 years. As stated above, Medicaid would not be concerned with how these gift were treated for tax purposes, they would only be concerned with how they are treated on the Medicaid Track.

As you can see from the above, there are many potential pitfalls with regards to gifting, both from a tax and Medicaid standpoint.  To avoid confusion, it is necessary to consult with an elder law attorney before making any gifts. If you have any questions with regard to the impact of gifting, please contact our office to set up an appointment to discuss this matter in further detail.

The Supreme Court of Ohio has asked the parties in the case of Pack v. Osborn to prepare briefs on the issue of "Whether the Medicaid eligibility rules are those in effect at the time of the creation of an inter vivos trust or those in effect on the date of eligibility review?"
Pack v. Osborn, 2006-1343 

Proof of Citizenship now Required for Medicaid

The Deficit Reduction Act (DRA) of 2005 imposes specific verification requirements on applicants for, and recipients of, Medicaid. The new verification responsibilities require an applicant to verify his or her U.S. citizenship by providing originals of either a citizenship document or a combination of a birth/nationality document and an identity document. A list of acceptable documents can be obtained from our office. This rule has proven to be difficult for some applicants. Please contact our office if you have any questions about these new requirements.

Social Security Benefits and Medicare Part B Premiums on the Rise

Did you know that Social Security benefits and railroad retirement benefits will increase by 3.3% January 1, 2007, and that the 2007 Medicare Part B Premium will increase to $93.50 for an individual who earns $80,000 or less, or for a couple a couple who earns $160,000 or less?

Debate Surrounds End of Life Care Costs (From USA Today October 19, 2006)

Estate Planning

New Right of Burial Disposition Document

Effective Oct 12, 2006, Ohio residents can sign a new document that names a representative to make funeral and burial arrangements for the signatory. The document can also be used to state how the signatory wishes to have their remains disposed of and their requests with regard to religious observances or the lack thereof.

New Ohio Trust Code Effective January 1, 2007 

House Bill 416 adopting the Ohio Trust Code was signed into law by Governor Taft in the summer of 2006. The new Trust Code goes into effect on January 1, 2007, and governs all Trusts, both irrevocable and revocable, subject to Ohio law. While the Trust Code is generally an attempt to codify Ohio common law, there will be some changes and new wrinkles for trust administration. It is highly suggested that all Trustees consult an estate planning attorney so that their Trust may be reviewed and they can be advised how the new laws affect their Trust.

Most Americans Lack Proper Estate Planning

According to a survey by the legal website FindLaw.com, most Americans do not have the essential legal documents needed for proper estate planning.  The survey questioned 1000 American adults nationwide, and the survey claims the results are accurate plus or minus three percent.  The findings of the survey include that 55% of Americans do not have a will to pass their estate upon their death, and 67% of Americans lack a Living Will/Health Care Power of Attorney.  The survey also found that many Americans often fail to keep their estate planning documents up to date.
www.findlaw.com (May 10, 2005)

If you have any questions on the above topics, please call our office at (800) 393-2324 or use our FREE E-MAIL RESPONSE SERVICE.