Legal-Ease: Gifts: taxes, Medicaid/nursing home and paybacks

Gifts include money, labor and items of value. The difference between a discounted sale price of an item and the fair market value of that item is also considered a gift. In other words, if I sell my truck to my niece for $1,000 less than the truck’s fair market value, I have given my niece a $1,000 gift.

Recipients of gifts do not pay tax on the gifts received.

And Ohio law does not tax gift givers, either.

Beginning in 2023, federal law allows a person to give away up to $12.92 million during the person’s lifetime (coupled with gifts after the person’s death, like through a will or trust) before the gift giver must pay tax.

If any one person gives any other one person more than $16,000 worth of gifts during the calendar year 2022 ($17,000 in 2023), the gift giver must inform the IRS, and the value of the gift is deducted from that gift giver’s $12.92 million lifetime (and after life) cushion.

If any one person gives any other one person $16,000 or less ($17,000 or less in 2023) worth of gifts in that calendar year, the IRS does not even want to know about the gifts. And those gifts do not count toward the lifetime (and after life) $12.92 million cushion.

Gifts between spouses do not count toward the annual and lifetime amounts under federal law.

The ability to gift without tax has nothing to do with gifts made in anticipation of applying for Medicaid (i.e. to pay for a nursing home, assisted living facility or in-home care) or when on Medicaid.

To be eligible for Medicaid, a person must satisfy several requirements that include having a financial net worth of less than $2,000 and not having given any gifts in the five years preceding applying for Medicaid (and while on Medicaid).

This means that any gifts made within five years of applying for Medicaid or while on Medicaid are technically considered by Medicaid as never having been made, which can delay or suspend Medicaid eligibility for people who make gifts during those relevant times.

Practically speaking, though, Medicaid understands that there may be a few hundred dollars a year that cannot be proven to not be a gift and thus provides a tiny bit of flexibility to this rule.

Almost always, gift receivers receive their gifts without any responsibility to pay those gifts back to the gift giver. However, there is one circumstance where a gift may have to be returned.

In very limited circumstances, if a gift giver has a certain financial obligation or reasonably can anticipate having a certain financial obligation within a reasonable time in the future (not to exceed four years in the future) and that gift giver makes gifts while the gift giver (a) has a negative financial net worth or (b) cannot pay the gift giver’s bills as they come due, a court can sometimes order gift receivers to return the gifts. Gifts in these contexts are called “fraudulent transfers”.

Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at [email protected] or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.