Should You Put a Little Scrooge in Giving?

It’s that time of year again – the time to experience the joy of giving, whether due to holiday celebrations or end-of-the year tax planning.  It seems that most people are aware of charitable tax deductions and gift tax exclusions on annual gifts ($13,000 per year per individual donee).  But are folks aware of the gift “penalty” assessed on much lower amounts in the world of public benefits, notably Medicaid?  The IRS rules and the Medicaid rules bear nothing in common.  Medicaid offers no such blanket exemption for charitable donations or other gifts made in amounts less than $13,000 per year.

While the current economic climate may cause one to pause and reflect upon gift-giving intentions, it cannot destroy the joy of giving. Does this sound like the story of Ebeneezer Scrooge? Well, that’s not quite the message here, for there are certainly instances where one should “put a little Scrooge in giving” and consider potential consequences before making gifts. 

Individuals seeking eligibility for long-term care Medicaid benefits within the next 5 years must disclose on an application all transfers made by the individual or his or her spouse.  Again, there is no exemption amount.  Medicaid presumes that transfers made, without due consideration, within 5 years of the eligibility request date were made in order to qualify for benefits.  It is the burden of the applicant to prove otherwise, a burden which may be difficult to meet.

Let’s consider an example.  Granddaughter Katie got married in the summer of 2009, and Grandma and Grandpa gave her a wedding gift of $10,000.  In January 2010, Grandma’s health seriously declined and she required nursing home-level care.  The couple was otherwise financially eligible for Medicaid, but had to disclose this gift.  The Medicaid-assessed penalty for this gift would be about 42 days of ineligibility for benefits, unless Grandma and Grandpa could successfully prove that the 2009 gift was not made in contemplation of applying for Medicaid.  Factors would likely include Grandma’s health in 2009 and any prior history of gifting.

Another common example includes charitable giving such as a church pledge or a particular fund donation.  Again, these gifts will be scrutinized by Medicaid if they fall within the 5 year radar.  Will the applicant be able to meet the burden of proof, to show that the “resources were transferred exclusively for a purpose other than to become or remain eligible for long-term care”?  (Quoted language from Vermont Medicaid Rule 4473D.)

Does this potential risk of a Medicaid penalty suggest that all giving should cease? Of course not!  Not everyone will need nor even contemplate applying for long-term Medicaid benefits within the next 5 years.  Sadly, however, in some circumstances, the answer is “maybe,” for some must weigh the joy of giving with the cost of losing potential Medicaid benefits.   For those families, putting a little “Scrooge” in giving may be prudent.

Jennifer R. Luitjens is Certified as an Elder Law Attorney (CELA) by the National Elder Law Foundation, a non-profit organization accredited by the ABA. She lives in Jericho and practices in South Burlington with the Jarrett Law Office. This article is for informational purposes only and is not intended to constitute comprehensive or specific legal advice. The author stresses the need to engage appropriate legal and financial professionals when devising your individual estate plan.