What Are the Consequences of Giving My Kids $14,000 A Year?
The $14,000 figure is bandied about a lot lately because this is the amount for the 2014 and 2015 gift tax exclusion. In other words, if you give away $14,000 or less, you don’t have to file a gift tax return. This rule applies for as many people as you wish to give to.
If you give away more than that amount to anyone but your spouse, you do. However, even if you give away more, you still won’t automatically have to pay a gift tax. You only have to pay a gift tax once your gifts reach a total of $5.43 million dollars for your lifetime. (Note that this is the 2015 number and is also subject to change.)
It is important to realize, however, that Medicaid’s rules regarding asset transfer are not the same as the tax exclusion. Medicaid’s five-year look-back will take into account any money you give away, and in doing so may deem you ineligible for benefits for a certain period of time.
The amount that makes you ineligible varies by state and is based on the cost of care in your area. If, say, the cost of a nursing home was $6,000 per month on average, and you give away $12,000 to your kid, Medicaid may determine you ineligible for two months. The reasoning behind this is that Medicaid does not want you to give money away in order to qualify yourself. Even if that was not your reason in making the gift, you may be unable to convince Medicaid of that fact.
So while, in the example above, you are still beneath the cap set for the tax exemption, you may still remove yourself from Medicaid eligibility for a period of time in making the gift. Therefore, it is important to consider more than tax law when deciding to give money away to your kids or others.
If you need more help understanding this topic before you make your choice, or want to ask other questions about gifts or finances, it might help you to talk to an elder law attorney. Our elder law lawyers can clarify the details and help you make the best decisions for yourself and your family.