Understanding Medicaid’s Rules on Gifting – Especially to Children

Why It’s Important to Understanding Medicaid Gifting Rules, Especially Relating to Children

When planning for long-term health care, Medicaid and Medicaid gifting rules may be involved. Thus, understanding the rules around gifting assets—particularly to children—is crucial.

Gifting to children is often part of a legitimate estate planning strategy, but when Medicaid eligibility is a concern, the rules become complex and unforgiving.

Penalties, Strategies, and Long-Term Care Planning

Many families attempt transfer of assets to children to protect such assets from consumption by nursing home costs. However, Medicaid has strict rules about such transfers, and improper planning can result in serious penalties.

First, it’s important to understand what Medicaid is and what it is not. Medicaid is not part of Medicare. Everyone over 65 is entitled to receive Medicare. Medicaid, on the other hand, is a needs-based program that provides healthcare coverage for low-income individuals. That coverage includes long-term care. To qualify for Medicaid, applicants must meet strict asset and income limits. In most states, a single person must have less than $2,000 in countable assets to qualify. The limits are slightly higher when spouses apply for Medicaid at the same time.

Medicaid imposes a “look-back period”—typically 60 months (5 years) from the date of application, specifically to prevent people from giving away assets just to qualify for long-term care coverage.  Any gifts or asset transfers during this time are scrutinized. What if such a transfer is found to have been made for less than fair market value? Medicaid will impose a penalty period where the applicant is ineligible for benefits, even if they are otherwise financially qualified.

The penalty period is calculated by dividing the amount of the gift by the average monthly cost of nursing home care in your state (referred to as the penalty divisor.) The Georgia Medicaid penalty divisor for 2025 is $10,965. So, for example, if you gifted $60,000 and the monthly long-term care cost is $6,000, you could be disqualified from Medicaid for over 5 months.

Annual IRS Gift Tax Exclusion Does Not Escape Medicaid’s Review

It’s a fact that each year, the IRS allows individuals to gift up to a certain amount—$18,000 per recipient in 2024—without incurring federal gift tax or needing to file a gift tax return. This is commonly referred to as the annual gift tax exclusion. However, there is a common mistaken belief that just because a gift is within the tax exclusion limits, it is also exempt from Medicaid scrutiny. This is not the case. While gifting $18,000 per child may avoid IRS tax consequences, it still counts as a gift under Medicaid’s look-back rules and may trigger a penalty.

Long-Term Care Planning Considerations

If you foresee needing Medicaid in the future, which many people do, it’s important to plan well in advance. Strategic long-term care planning typically involves the following:

Early gifting (more than 5 years before applying); Use of irrevocable trusts to protect assets; Exploring Medicaid-compliant annuities; Consulting with an elder care law attorney to ensure compliance.

Qualifying for and avoiding Medicaid penalties requires careful timing and legal guidance. And, as I’ve pointed out, it is possible to express generosity to your children and qualify for Medicaid with proper advance planning. Whether you will have to access Medicaid or not, you can be prepared to qualify should the need arise. Let’s get started. Give my office a call today at (470) 235-7868.

Looking to find an experienced estate lawyer in the Georgia area who is skilled in asset protection and estate plan preparation? Shannon Pawley is an attorney in Georgia with expertise in estate planning and asset protection. Shannon can provide assistance with creating an estate plan to include making a will and how to establish a trust properly. If you have questions about asset protection or questions about making an estate plan, reach out to Shannon and she will be glad to help answer all the estate planning questions you might have!