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FAQ: I know Medicaid has a 5-year lookback period for gifts, but can’t I give $14,000.00 to my kids each year without a penalty?

No. That’s a VERY common misunderstanding though!  The $14,000.00 rule is a tax rule issued by the IRS. The 5-year lookback period is a rule related to Medicaid, and applies even to gifts that would be ok tax-wise.

The IRS requires anyone who gifts more than $14,000.00* to any individual during any given year to file a gift tax return. It’s at this $14,000.00 mark that the IRS wants to start keeping track: just because a gift is given above this amount doesn’t necessarily mean gift tax will be due. So, you can give $14,000.00 to each of your children, each year, without the added paperwork of a gift tax return. Gifting is a good strategy for some, but I recommend discussing it with an attorney, as well as a CPA, who are familiar with your individual circumstances.  

For Medicaid purposes: all gifts given within the past 60 months (five years) are viewed as being a gift for the purpose of qualifying for Medicaid—even gifts of $14,000.00 or less. The person reviewing your Medicaid application will assume that the purpose of your gifting was to spend down your assets in order to qualify more quickly. As a result, a penalty is applied— and you cannot qualify for benefits for a certain number of months, based on the amount that was given away.

Gifting mistakes are fixable, but it’s always better to proceed with caution in the first place.