THE $12,000 QUESTION
I understand I can only give my child $12,000 each year, is this right? I understand I can only make a gift to my children if I do so at least three years before I go into a nursing home, is this right?
These are the two most frequently asked questions about gifts from parents to their children. The answer to the first question is no and the answer to the second question depends on how knowledgeable your attorney is. You can give any one person more than $12,000 in one year and you can give your children money shortly before or while you are in a nursing home.
When you make a gift of more than $12,000 to a person in a year you must report this gift by filing a gift tax return. There is usually no tax paid by either party.
In simple terms, the amount of a gift in excess of $12,000 is subtracted from the amount you can own at the time of your death and avoid paying federal estate taxes. For example, if father gives his daughter $62,000, the amount over $12,000 is subtracted from his federal gift tax exemption, currently $1,000,000, so if he dies with more than $950,000, his heirs may be required to pay federal estate tax on the excess amount. The entire gift may also be subject to a modest amount of Indiana inheritance tax at the time of his death.
If you give away money and become eligible for Medicaid to help pay for nursing home costs, a period of ineligibility for Medicaid is created. This period of ineligibility is determined by taking the amount of the gift and dividing it by the average cost of nursing home care, which is $3,898 in northeast Indiana. The result is then rounded down to the nearest whole number to determine the number of months of ineligibility from the date of the gift. However, the period of ineligibility does not begin to run until you are eligible for nursing home care and out of money.
You should consult an elder law attorney before making gifts if you may go into a nursing home within the next five years. The rules on gift giving are very complex. Please see the article on Planning For Nursing Home Care on our website for more details.
Keith P. Huffman
Elder Law Attorney
Updated March 2006
