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Gifts and Medicaid Planning

The IRS recently enacted revenue procedure 2015-53 that states that “[f]or calendar year 2016, the first $14,000 of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts under § 2503 made during that year.

Most clients mistakenly believe the annual exclusion has something to do with their income taxes – absolutely false. Believe it or not the Federal government taxes people who make gifts to others. Think about that – the person making the gift must pay a gift tax. This does not strike most people as making sense which is why this is one of the most confusing of all the types of taxes.

Most often the subject of gifts come up when discussing transferring assets to children, or others, or trusts. The purpose is usually to protect the assets gifted away in the event the client needs to enter a skilled nursing facility and desires to apply for Medicaid. These gifts must be analyzed in the gift tax “universe” as well as the Medicaid planning universe to determine if the client’s goals are being accomplished.

Taking a step back … what is a gift? Although the federal government taxes gifts, it doesn’t define what a gift is. The federal government looks to state law to determine the definition of a gift. New York case law defines a gift as follows … “to make a valid … gift there must exist the intent on the part of the donor to make a present transfer; delivery of the gift, either actual or constructive to the donee; and acceptance by the done.” (GRUEN v. GRUEN (68 N.Y.2d 48 (1986)).

These elements can be summarized as follows:

  • The donor must be competent;
  • The donor must have the intention of making a gift;
  • The donee must be capable of receiving and possessing the property;
  • There must be actual or constructive delivery of the property to the donee or the donee’s representative; and
  • The donee must accept the gift.

Aaron E. Futterman, CPA, Esq. is a partner in the law firm of Futterman & Lanza, LLP with offices in Smithtown, NY and clients throughout Suffolk, Nassau, New York City, Westchester and Rockland Counties. He concentrates his practice to Elder Law, Medicaid Planning, Medicaid Applications, Estate Planning, Probate, Estate Taxes, and Estate Administration.

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