As baby boomers age, estate planning starts to become an issue. You start to really ponder about life after you are not there. Part of that process is making sure your estate is in order. Whether its passing on effectively to your heirs or donating to you favorite charitable cause. Seniors today have to contend with a dirty little secret that was put in place by Congress when they passed the Deficit Reduction Act of 2005.
Dirty Little Secret
The DRA made changes in the way that government will punish seniors for acts of both charity and gift giving. The rules that govern medical and long-term care benefits presume when a senior makes a charitable or family gift, that the gift was an attempt to get rid of excess assets in order to qualify for medical and nursing home expenses. That’s right- SENIORS ARE GUILTY UNTIL PROVEN INNOCENT! The burden of proof is on seniors to show that when they gave money to their church or child, that they had some other reason than to qualify for benefits.
Cruel and Unfair?
This DRA rule creates a cruel penalty of ineligibility for services if and when a senior who gave away money needs nursing home services at any time withing 5 years after the gift. In effect, our government has created a punishment for seniors who may suffer chronic long-term illness within 5 years after a gift.
As long as this law is in place, seniors must remember that the IRS gift tax rule allowing gifting up to $13,000 tax-free is only a tax rule. Giving away $13,000 may cause a senior to suffer a loss in nursing home coverage of 2 to 3 months if they need such assistance within 60 months after giving that money away.
Thanks to our government, charity and other gift giving may now be hazardous to your health care!