The Law Offices of Brenda McElnea, CELA

Experienced Elder Law Attorney

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West Orange Gift Tax Attorney

Making GiftsSeniors Beware the Consequences of Making Gifts

We watch our adult children grow up and become independent and we often want to help them along, perhaps paying for a grandchild’s summer camp, helping with tuition, helping them to buy a new couch, and just making gifts for special occasions like birthdays, graduations, and weddings. When making a financial gift, however, it is important to consult an attorney regarding the impact your gift could have on you or your spouse’s future health care, should either of you ever need nursing home care.

At The Law Offices of Brenda McElnea, our legal team can help you understand your options, develop an estate plan and determine whether gift giving makes sense and is safe for you. If you have questions about your estate plan, Medicaid plan or state or federal gift tax, our West Orange attorney and paralegals at our firm can help you. We represent clients throughout Essex and Monmouth Counties, and northern and central New Jersey.

IRS Rules Regarding Gifts

Financial planners, accountants and attorneys who are not elder law attorneys often encourage their clients to engage in making annual gifts to family members. They remind their clients that they can presently make a gift in the amount of the IRS annual gift tax exclusion ($13,000 per person in 2012) to each family member and pay no federal gift tax. In addition, New Jersey does not have a gift tax.

The IRS rules about gifts that are not subject to tax are very generous. In addition to the annual gift tax exclusion, each of us can make additional gifts of present interests that would be subject to tax, except that the IRS rules say that gifts over the taxpayer’s lifetime that total up to $5 million are not subject to tax. In addition, gifts that are not subject to the federal gift tax include:

  • Gifts to charities
  • Payment of tuition for someone else, paid directly to a qualified educational institution
  • Payment of medical expenses for someone else, paid directly to a qualified medical provider
  • Unlimited gifts to a spouse who is a U.S. citizen

Medicaid and IRS Tax Lawyer Serving Middlesex County

Medicaid, however, does not recognize the IRS rules about gifts. Medicaid will total all gifts made by the Medicaid applicant and his or her spouse during the five years prior to the application. Then, Medicaid will divide that total by a number that Medicaid says, in essence, is the average cost of a semi-private room in a nursing home that accepts Medicaid in New Jersey.

The answer to that math problem will determine the period of time during which the Medicaid applicant will be penalized by being denied Medicaid benefits. That period of time begins when the Medicaid applicant would otherwise qualify for Medicaid because of having made gifts, he or she will be ineligible. There are several notable exceptions to the rules about the Medicaid penalty period, but most Medicaid applicants do not fall within those exceptions.

Before making a financial gift to a relative, loved one or spouse, we can help you determine the impact that gift may have on your Medicaid eligibility. To discuss your options with an experienced attorney at our firm, contact us online or call 866-241-8477.