When Can Spouses Make Gifts to Each Other in 2014 without Causing a MassHealth or Federal Gift Tax Problem?

by:   Brian E. Barreira, Esq.

Under federal Medicaid law and MassHealth regulations, spouses have the right to transfer assets to each other at any time without causing a period of ineligibility from Medicaid, which is known as MassHealth in Massachusetts.  The purpose of the gift is not scrutinized by MassHealth, and the 5-year lookback period does not apply to cause a MassHealth disqualification period.  Gifts between spouses can even occur after a nursing home stay has begun and after a MassHealth application has been filed.

There is no Massachusetts gift tax.  For federal gift tax purposes, spouses who are both United States citizens can make gifts of any amount to each other at any time without causing any gift tax issue, and without even causing any need to file a federal gift tax return.  If one spouse is not a United States citizen, however, a federal gift tax problem can arise, since gifts made to a spouse who is not a U.S. citizen have their own annual exclusion amount, and are limited by federal tax law to $145,000 in 2014.

Any gift above $145,000 in 2014 to a spouse who is not a U.S. citizen would require the filing of a federal gift tax return by the spouse who makes the gift.  For most married couples, however, exceeding that amount would not pose any tax problem, since any gift in excess of $145,000 would not cause an immediate tax; rather, the amount of the gift in excess of $145,000 would merely use up some of the gift-giving spouse’s federal estate and gift tax exemption, which is $5,340,000 in 2014.