Myth: Can’t I give $19,000 a year?

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My clients have plenty of questions about Medicaid and long-term care. One of the most common is: Can’t I give $19,000 a year? The answer is clear: not as far as Medicaid is concerned.

This idea comes from tax law. We have a federal gift tax, but you can give up to $19,000 per person in 2025 free of both tax and paperwork. (If you exceed that amount, you have to file a gift tax return so the IRS can reduce your lifetime gift-and-estate-tax exemption. It’s annoying paperwork, but only multimillionaires end up actually owing any tax.) The amount used to be $15,000, so sometimes my clients reference that number.

Regardless, this exemption is a tax rule, not a Medicaid rule. Although both have a lot to do with money and the federal government, tax law and Medicaid law have almost nothing to do with each other. So although you may give $19,000 tax-free, that doesn’t mean the gift is free of Medicaid consequences, too.

In fact, Medicaid law considers almost any gift a divestment and imposes severe consequences. If you gave each of your children $19,000 and needed expensive long-term care within the next five years, Medicaid would deny your application and force you to pay the expensive private rate out-of-pocket for months or even years before you could apply again. The Medicaid office wouldn’t care that tax law made the gift tax-free.

Unfortunately, this myth is so pervasive that many people make large gifts to their families without thinking twice. It’s a natural mistake. The good news is that there are ways to either cure a divestment or deal with its consequences, if you plan ahead and work with an elder law attorney.

I often plan for divestment and its consequences with my clients. Sometimes they’ve unwittingly divested in the past. Sometimes they want to give something to their families and simply need a strategy for the consequences. Sometimes, even, the Medicaid rules allow an asset to be divested, and we want to take advantage of that.

The divestment rules are complicated. They can either save you money or cost you money on the order of tens or hundreds of thousands of dollars. That’s why it makes sense to get help from an expert who understands the rules and knows how to navigate them.

She could have kept her money

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With Medicaid, one small detail can cost you thousands. Take, for example, the recent case of a woman whose husband was on Medicaid for long-term care. She thought she had to spend the money in her bank account, so that’s what she did. Only the problem wasn’t her bank account at all.

You can read all about it at Elder Law in Wisconsin, where I publish Medicaid decisions for other elder law attorneys. The problem was one of those Medicaid details few people understand, even those who work with long-term care and Medicaid daily: the rules about a married couple’s assets are different when you first apply and when you first renew.

When a married couple first applies for long-term care Medicaid, it doesn’t matter whose name is on the assets. With only a few exceptions, the Medicaid office adds up the assets in either spouse’s name. If the total is over the asset limit—which can be anywhere from $52,000 to about $160,000—the application is denied. The Medicaid Eligibility Handbook (the rule book for the county Medicaid office) says: “Count the combined assets of the institutionalized person and his or her community spouse. Add together all countable, available assets the couple owns.”

After the application is approved, however, the rule changes. Now it does matter whose name is on the assets. The couple has one year to get the institutionalized spouse’s name off everything above $2,000. This is called the “asset transfer period.” At the first renewal (Medicaid benefits have a “renewal” every year where you have to update your information and prove you are still eligible), the only thing that matters is that the name of the spouse on Medicaid is on less than $2,000 worth of assets. In fact, the other spouse (the “community spouse”) could have a million dollars and it wouldn’t affect the Medicaid benefits, as long as that million was in his or her sole name. The Medicaid Eligibility Handbook says: “The institutionalized spouse must transfer the assets to the community spouse by the next regularly scheduled review (12 months). If their assets are above $2,000 on the date of the next scheduled review, they will be determined ineligible.” (That’s the singular they, by the way.)

So what happened to the woman in this case? Her husband had his first yearly Medicaid renewal, where it was discovered he still had his name on some stocks. She was told they had too much money to be eligible. Her mistake was thinking that she had to spend down her own bank account rather than the stocks. It’s an understandable mistake, because that would have worked when they first applied. But at the first renewal the rules are different.

In fact, she didn’t have to spend down anything. The problem could have been solved by simply transferring ownership of the stocks from her husband’s name to hers. One phone call with an experienced elder law attorney would have told her that. We don’t know how much money was in her bank account that she spent down. The stocks were worth more than $16,000. Her husband lost Medicaid for two months because of the mistake, so she also had to pay for his long-term care during that time. So, this small detail, this simple, understandable mistake likely cost her several tens of thousands of dollars.

That’s the difference one small detail can make. That’s the difference good advice from an elder law attorney can make. And that’s why one of my core values is be correct. With Medicaid, being correct requires attention to the details.