Myth: Can’t I give $19,000 a year?

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.