It has been a couple of years since we discussed the contrast between federal tax rules and ALTCS rules on the blog, and it is definitely an issue worth revisiting. Those who apply for Arizona Medicaid oftentimes begin the ALTCS application process with the mistaken idea that they can give away up to $13,000 to any number of people to obtain ALTCS eligibility. Chances are, these people are getting this idea from federal gift tax rules, which are very different than those that apply to Arizona Long Term Care System applicants.
The truth is that federal tax rules do allow taxpayers to give away up to $13,000 per person every year without tax consequences. ALTCS rules, on the other hand, impose strict penalties on ALTCS applicants who give away their money in attempt to obtain ALTCS eligibility. While these two rules seem to contradict one another, they apply to two very different scenarios. As such, while certain gifts may not carry tax penalties, the ALTCS penalties remain.
While ALTCS applicants are not prohibited from gifting their assets, they can expect to receive a period of ALTCS ineligibility for doing so. This is not to say, however, that it is never appropriate for an ALTCS applicant to engage in gifting, as ALTCS planning many times includes gifting strategies. But, before giving assets away to qualify for ALTCS/Medicaid, ALTCS applicants should consult with an Elder Law attorney about the most suitable way to accomplish their ALTCS planning goals.