The Senior Gifting Guide

As we begin to shop for gifts this holiday season, it is important to discuss gifting and how it affects seniors. Seniors have the greatest portion of wealth in our society. As a result, children and grandchildren often pressure the elderly for financial assistance. However, there can be risks associated with gifting as we age. Medicaid, the largest public assistance program for long-term nursing care will sanction applicants for gifts made to children and grandchildren. Medicaid is an essential program for any senior who may need nursing facility care and cannot afford the high cost involved. Medicaid will penalize the senior for any gift, other than traditional birthday or Christmas gifts, made within five years of your application for assistance.  Many seniors should not make large (non-historic) gifts to family members for this reason. Medicaid will not sanction regular pledges to churches or charities and normal historic gifts to family members.

While most seniors face the risk of a Medicaid penalty when gifting, other well-to-do seniors enjoy giving back during the holidays. Seniors generally do not need Medicaid if they can pay for the cost of their long-term care out of their income, or if they have long-term care insurance, but that is a fairly small group of Seniors. Also, single seniors with large retirement accounts are often not good candidates for Medicaid spend-down planning; this is an area where you need advice from an experienced elderlaw attorney.  Gifts can be a blessing to both the giver and the receiver, but it is important to understand the dynamics involved.

Many times people think that they should give away their most important asset—their home. If the senior gifts his or her home to a child, the child will pay capital gains taxes when they sell it. This could be avoided if the child inherited the home instead. If the home will be sold, it is critical to retain your tax exemption for the sale of your primary residence, which is lost if you gift the home to your children.  Also, people in other states (not NC) may create state gift tax liability.  Medicaid allows the senior to retain his or her home as an exempt asset if it satisfies certain criteria. You do not have to be destitute to qualify for Medicaid, but certain gifts can cause problems. It is important to speak with an experienced Elder Law attorney, as the rules for Medicaid can be complicated.

Many seniors have large retirement accounts but otherwise meager nest eggs, leaving them with limited liquidity without significant income tax liability. They enjoy giving back during the holidays but think that they lack the means to donate without facing tax implications. This is because most know that any time they regularly withdraw from their IRAs, they will be taxed with ordinary income tax for distributions from that account.  Luckily, if you make those distributions directly to your church, synagogue, or favorite charity, the charity will not pay taxes on this money.  While you will not get a charitable deduction, you will not pay ordinary income tax, either. This is a powerful way to make charitable gifts if your retirement account is overfunded. Be sure to contact an experienced Elder Law attorney or tax advisor before donating, as Congress must reauthorize this law.  Most seniors with large IRA accounts will be wise to withdraw much more than minimum required distributions each year, particularly if they may qualify for Veterans Pension or need to qualify for Medicaid in the future; again, this is an issue where professional advice will help.

To find out more information about gifting and its implications for Medicaid, or to learn more about how you can make charitable contributions tax-free from your retirement account, contact an experienced Elder Law attorney. Call W.G. Alexander & Associates today for more information!

Attorney Bill Alexander discusses these issues and more every Tuesday morning on W.G. Alexander & Associates’ radio program, “Asset Protection Today,” on TalkRadio 850 WPTK (AM). Be sure to listen tomorrow  from 9:00-10:00 AM.  To listen to last week’s show, please visit WPTF’s on demand show blog by clicking here.