Should you spend down your money for concerns of nursing home care by making monetary gifts to your children?

By Olivia Wann

First let’s establish the difference between IRS rules and Medicaid eligibility rules.

The IRS sets limits on the amount you can give to another person without having to pay tax. In the year 2025, the annual gift tax exclusion is $19,000 per person or entity. This means you can give up to $19,000[1] to a person without paying a gift tax. Note that gift tax rates range from 18% – 40% and the donor—you—would pay the tax.

The lifetime gift tax exclusion ties directly to the federal estate tax. This exclusion amount is the amount of money or value you can give away during your lifetime without being subject to federal tax. For the year 2025, the federal lifetime gift tax exclusion amount is $13.99 million. In addition to the federal estate tax, 12 states and DC impose state estate taxes. Tennessee repealed its death tax in 2015.  

None of these numbers correspond with Medicaid eligibility. If you are attempting to deplete money in the bank in fear that you will require long term care and wish to qualify for Medicaid, keep in the mind the five-year look back. In a previous episode, we discussed how Medicare only pays for a total of 100 days. After that time period, you are either out of pocket for the costs or you can apply for Medicaid. Medicaid looks back 5 years at financial statements. Any gifts made during this period for no fair market value will result in a penalty. Penalties can result in a certain amount of days or months and even years whereby Medicaid will not issue payment of long term care depending on the amount of the transfers.

Think of a situation where a person may have given money away to their children. A year or two later, they require long term care. Medicaid denies coverage due to the monetary transfers or transfers of real estate for no fair market value. If there is no money to pay for the care, who will pay for it? Who will take care of this person?

Before you make a serious financial decision involving financial or real estate gifts, please consult a CPA, tax professional or attorney who is knowledgeable about estate planning.

[1] https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes