The current IRS rules allow a donor ("each one of us") to give away up to $12,000 per year to any number of donees, and the gift or gifts do not require the donor to file a gift tax return or pay any gift taxes. As long as each donee only gets gifts that total up to $12,000 per year from any one donor, the plan works perfectly. In the case of a husband and wife, they can each give away up to $12,000 per donee, thus a donee could get $24,000 in a given year, and the couple would still not have to file any gift tax returns or pay any gift taxes.
For Medicaid purposes, all gifts made within 5 years of entering a nursing home and applying for Medicaid benefits will be treated as uncompleted gifts. In other words, the donor will still be viewed as having control over the gift amount(s). In most states, if the gift amount(s) total to more than $2,000, the donor will not be eligible for LTC Medicaid benefits.
In light of the above, and on the assumption that a donee may want to spend the gift amount(s) if they were left in the donee's name, is there good way to make the aforementioned gifts and not ruin the opportunity for the donor to qualify for Medicaid benefits within the 5 year look-back? The answer is, "yes". The donee(s) should establish a revocable family trust, and place all the gifts inside of the trust by way of tax deferred annuity. Once the 5 year look-back period has passed, the donee(s), as co-trustees, could agree to terminate the trust, and disburse the trust corpus to themselves. At that time, the donor would be eligible for LTC Medicaid benefits, and none of the gift(s) would be deemed available to the donor.
