To Gift or Not to Gift…That is the Question

A gift is defined in the dictionary as: “something given voluntarily without payment in return, as to show favor toward someone, honor an occasion, or make a gesture of assistance; present.” That definition makes a whole lot of sense. Think of gifts that you’ve received for your birthday, Christmas, or your anniversary. A box with a bow or an envelope with money in it, are the types of gifts that everyone understands. Describing these gifts would not make for a very informative article. The gifts I’m interested in telling you about occur all the time without much thought, but are considered the same as the box with the bow as far as state and federal government authorities are concerned. If you or anyone you know may be applying for Medicaid (Medical Assistance), you should be familiar with these examples.

An extremely common example of a gift, that isn’t as clear or simple as above, is selling something, but giving a loved one a “deal” on it. For example, your house is worth $150,000 but you sell it to your son for $80,000. That’s a $70,000 gift that needs to be reported and accounted for. Or your car is worth $1,000, but you sell it to your 16-year-old grandson for $1. This is also a gift.

Another situation that is common is where parents transfer a cottage or home to family members, and the parents continue to pay the real estate taxes on the property despite having no responsibility to do so. Even though the money never goes to the family members directly, payment of someone else’s obligation is a gift.

Not charging rent to someone can be a gift. If you own a rental property, but let a family member live there rent free, that can be a gift in certain situations.

Likewise, paying a family member to assist you with personal care or other activities, without a written agreement, can also be considered a gift.

There are certainly other examples of gifts that are not as simple as handing someone a box with a bow on it. Whether something is a gift or not a gift is extremely important if Medicaid (Medical Assistance) is a possibility. Currently there is a 5 year “look back” period as it relates to gifts. Any gift made within 5 years of application must be returned in full, or a penalty is imposed on the applicant. Even if intentions were good at the time, the moral of the story is to be careful, especially when you or a loved one is considering Medicaid as an option to pay for long term care (e.g. nursing home care). If you aren’t sure if something would be considered a gift or not, seek someone with experience in the area to advise you on the correct way to do what you want to do.

Posted in Elder Law & Special Needs Planning, Estate Planning.