Federal Gift and Estate Tax and Medi-Cal Gifting

Dear Len & Rosie,

My Dad is 90 years old and in excellent health except for losing his eye sight to macular degeneration. He can no longer live alone. He has approximately $300,000 in the bank. He has three children, and I understand that he can give us each $14,000 per year. Are there any circumstances that he can give us more? The reason for this question is the rule about not giving gifts over $14,000 for a three year period before you enter a nursing home.

Sandy

Dear Sandy,

You have mixed up the gifting rules for Medi-Cal eligibility with the gifting rules for Federal Gift and Estate Tax. Under gift and estate tax law, your father may give up to $14,000 each year to as many people as he wishes, without having to report his gifts to the IRS on a gift tax return (IRS Form 709). But federal gift tax law has absolutely nothing to do with Medi-Cal. Any gifts that your father may make will be subject to both the $14,000 gift tax exclusion and Medi-Cal’s transfer penalty rules.

If your father ever needs nursing home care and applies for Medi-Cal, he will have to disclose every gift he made in the thirty months (not three years) prior to applying for benefits. Each gift triggers a transfer penalty period during which your father cannot receive Medi-Cal. This does not mean that your father cannot get Medi-Cal benefits for thirty months after he makes a gift. The transfer penalties are applied retroactively to when the gifts were made. If your father makes gifts and waits out the transfer penalty periods before applying for Medi-Cal, he’ll be eligible.

If all of this sounds complicated, it’s because it is. Part of Medi-Cal planning is devising a gifting strategy to minimize the transfer penalties, and it is appropriate to start Medi-Cal planning when a person such as your father is in a nursing home, or suffers from an ailment that is likely to put him in a nursing home someday.

To make it even more complicated, federal law has changed. Once California implements the new rules, you’ll have to disclose gifts made in the five years prior to filing the Medi-Cal application, and Medi-Cal transfer penalties will no longer be applied retroactively. The bottom line: Don’t do this at home. It’s also vitally important to remember that while your father can give his money away, you can’t, at least without his permission. If you are going to transfer money out of your father’s name on his behalf, you had better have a durable general power of attorney that specifically authorizes you to do this gifting. Otherwise you’re stealing your father’s money.

You should also consider whether or not your father will ever need nursing home care. It’s certainly a possibility, but absent some other disability, a nursing home is not usually an appropriate care environment for the elderly blind person. However, if your father considers the risk of spending his money on nursing home care unacceptable, he should consult with an elder law attorney and start Medi-Cal planning now, so he’ll be eligible for Medi-Cal, or at least be closer to being eligible, if he needs nursing home care in the future.

Len & Rosie