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Michigan Elder Law Today

Friday, October 23, 2015

Estate Taxes, Gift Taxes, and Medicaid

The Internal Revenue Service has announced that the estate tax exclusion amount will increase to $5,450,000.00 for the estates of people dying in 2016.  The exclusion amount is the amount a deceased person can own without there being a federal estate tax that must be paid out of their estate before it is distributed to the deceased person’s heirs or beneficiaries.  Some states have a state estate tax, but the State of Michigan does not have a state estate tax.

The annual gift tax exclusion will remain at $14,000.00 in 2016.  The gift tax exclusion amount is the amount one can gift without having to file a gift tax return with the I.R.S.  This means one can give $14,000.00 to an unlimited number of people without having to file a gift tax return.  While no gift taxes would be owed on gifts of $14,000.00 or less, any such gifts made within 60 months of a person applying for Medicaid long-term care benefits could be considered a divestment, resulting in a period of ineligibility for nursing home benefits.  For example, if a senior gifted $14,000.00 within 60 month of applying for Medicaid, they would be ineligible for Medicaid for 1 month and 21 days if Medicaid considered it to be a gift.  However, gifts can be made provided they are properly structured, which is where an elder law attorney can help with Medicaid applications.

The reason for this conflict between the gift tax laws and Medicaid is in part due to a Congressional policy decision to encourage wealthier people to make gifts of part of their estates which the gift recipient may spend thus stimulating the economy.  Also, Congress does not want to pay for the additional I.R.S staff that would be necessary to process all the gift tax returns if gifts of $14,000.00 or less had to be reported.

So while gifts of $14,000.00 or less do not have to be reported to the I.R.S., such gifts do have to be reported to the Department of Health and Human Services, the state agency that processes Michigan nursing home applications.

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