Gifting and the 2015 Gift and Estate Tax Exclusion Numbers

Q. I recently got married and my husband and I found the perfect starter home in Fairfax County. The owners accepted our offer and my mother generously offered to give us $20,000 to help with the down payment. She also has a history of giving small monthly gifts to the animal shelter and to her church. If my mother requires nursing home care next year (which we think is possible), would she be penalized for the gift she gives to us and the recurring donations to the animal shelter and church?

A. Congratulations on your marriage and on the pending purchase of your new home. To answer your question, when it comes to Medicaid eligibility, YES, your mother would be penalized for the help she is offering for your down payment.

Gift giving can be a risky venture for people who may need Medicaid coverage within five years. Medicaid presumes that all gifts made in the 5 years prior to filing for Medicaid were made in contemplation of applying for Medicaid. Individuals seeking eligibility for long-term care Medicaid benefits must disclose all gifts made by the individual or his or her spouse within the prior 5 years. Medicaid presumes that gifts made within 5 years of the eligibility request date were made in order to qualify for benefits.

If someone has a history of giving small weekly or monthly gifts to a charity, as your mother does, most Medicaid offices will not construe those to be disqualifying gifts. For instance, in Virginia, these types of regular gifts are not penalized so long as they are under $4,000 per year and there was a regular pattern of making this gift for years prior to applying for Medicaid.

Does this potential risk of a Medicaid penalty suggest that all giving should cease? Not necessarily. However, those who may need nursing home care within the next five to ten years must weigh the joy of giving against the potential cost of losing much-needed Medicaid benefits.

For more information about gifting and Medicaid eligibility, read “Medicaid: The Perils of Gifting FAQ” on our website. Please suggest to your mother that she call 703-691-1888 in Fairfax, 540-479-1435 in Fredericksburg, or 202- 587-2797 in Washington, DC to make an appointment for a no-cost consultation.

Q. Also, on the topic of gifting, my husband and I would like to make gifts to the Alzheimer’s Association and are not sure if we should do so this year (in 2014) or next. What are the new gift and estate tax exclusion numbers for 2015 and how do they compare to the current ones? If we do start making gifts, should we update our estate planning and, if so, how often?

A. The IRS recently released the gift and estate tax exclusion amounts for 2015. Under the provisions of the American Taxpayer Relief Act of 2012, the lifetime gift and estate tax exemption increased from $5,120,000 in 2012 to $5,250,000 in 2013 and the tax rate increased to 40%. In 2014 and future years, the exemption amount continued to be indexed for inflation and the tax rate remained at 40%. The 2014 lifetime gift tax exemption as indexed for inflation was $5,340,000, and the 2015 lifetime gift tax exemption is $5,430,000 (an increase of $90,000).

In 2014 you can gift up to $14,000 per person, per year, without incurring any federal gift tax. These gifts are referred to as annual exclusion gifts and are not subject to the federal gift tax at all and therefore do not use any of your lifetime exemption from gift or estate taxes. The annual exclusion amount is indexed for inflation but can only increase in $1,000 increments. Therefore, the 2015 annual gift tax exclusion remains at $14,000. However, always beware of making lifetime gifts if you are over the age of 65 — read the Perils of Gifting webpage on our website for more details.

For spouses, there is an unlimited deduction from estate and gift tax that postpones the tax on assets inherited from each other until the second spouse dies. Married couples can combine their annual exclusion gifts and gift up to $28,000 per person, per year, but “split gifts” must be reported to the IRS on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.

The new inflation adjusted numbers are available in Revenue Procedure 2014-61, issued October 30, 2014.

With all of the frequent changes that take place in the tax laws, and even more frequent changes in Medicaid rules, I recommend that everyone should revisit their estate plans every year. The Farr Law Firm’s Lifetime Protection Program, ensures that your documents are properly reviewed and updated as needed, so that they will have the proper effect under the law.