With the holidays approaching, you may be feeling generous. Giving a gift is a great way to show your appreciation toward your loved ones. There are benefits and drawbacks that you should consider before you make any substantial gift.
1. Medicaid/ MassHealth Consequences of Gift Giving: Seniors with less than $1 million, should be aware of the Masshealth/ Medicaid consequences of gifting. Gifting for any reason (including education and medical expenses) may cause a problem, if you or your spouse need nursing home care within the next five years. When you make a gift within five years of applying for MassHealth Long Term Care benefits a penalty period will be imposed, based upon the amount of the gift. Special gifts such as Christmas, birthday, wedding, or graduation gifts of $500 or less, are not likely to cause a problem for Medicaid/MassHealth qualification. However, gifts in excess of this amount will cause a problem. Since it is almost impossible to know if you will need nursing home care within the next five years, please consider the following before making a gift:
If your health is failing and your assets are under $700,000, you should check with an elder law attorney before making any substantial gift.
If your spouse is ill and may need nursing home care, you should check with an elder law attorney before making any substantial gift.
If you make a significant gift, do you have enough money to pay for five years of nursing home care? Nursing home care in the Boston area, often costs $12,000 per month or more. Therefore you will need approximately $720,000 in assets to ensure that you can pay for your care for at least five years.
If you make a significant gift, would the person that you give the money to be willing to give it back if you need to apply for MassHealth/ Medicaid benefits within five years? Even if your loved one has good intentions, there is no guarantee that they will be able to return the money, if you need it back. The gift that you make could also be subject to the risks of bankruptcy, divorce, or a lawsuit. If your loved one is able to return the gift, It is considered "a cure", and in most cases the problem can be corrected.
2. IRS Annual Exclusion Amount: Many people are aware of the IRS rule that they can give away up to $14,000 per year, per person, without owing any tax. This is also referred to as the "annual exclusion" amount. What happens if you give away more than $14,000 per person, per year?
When making gifts, most seniors should be more concerned with the Medicaid/ MassHealth consequences described above than exceeding the annual exclusion amount. If you give away more than $14,000, then you are required to file a gift tax return with the IRS. However, as long as you haven't given away more than $5,430,000 during your lifetime, you will not owe any tax. In 2016, this amount will increase to $5,450,000.
Married couples can give away up to $28,000 per person per year, without requiring the filing of a gift tax return.
There is no limit for gifts between spouses, to charities, or for direct payment of medical expenses or school tuition.
When a single or widowed person dies in Massachusetts with assets greater than $1 millon, an estate tax will be due. Gifting can be a good way to reduce the estate of a single person to minimize or avoid estate taxes at the end of your life.
The IRS annual exclusion amount will remain the same in 2016.
3. Step up in basis: If you plan to give away any asset that has appreciated in value, you should check with an accountant or elder law attorney about the income tax consequences before making the gift. For assets that have appreciated significantly in value, it may be better to hold the asset until your death to avoid capital gains taxes. Some assets that have appreciated in value may receive a "step up in basis" upon your death. This means that the IRS will use the value of the asset at the time of your death, rather than the actual amount that you paid for the asset, when determining capital gains tax.
4. Will the person that you give the gift to owe any tax? In Massachusetts, when you give a gift to someone, they do not owe any tax on that gift, regardless of the amount.
If you are contemplating making a large gift to a loved one and have any questions, please contact our office for guidance.
The attorneys at Senior Solutions are caring elder law and estate planning attorneys with offices in Belmont and Hingham, Massachusetts. We serve the Greater Boston and South Shore of Massachusetts. Providing Medicaid Planning, Wills, Trusts, Powers of Attorney, Health Care Proxies, Special Needs Trust Planning, Guardianship & Conservatorship and Probate.