Not only is giving more joyful than receiving, but if you do it right, you can save yourself a lot of money in taxes and health-care bills. Unfortunately, the opposite is also true. In states with a gift tax, such as Indiana, failing to plan ahead could cost your estate dearly. Similarly, Medicaid could penalize you if you give away your assets before applying for financial support from Medicaid.
Gift tax is part of the federal tax code and therefore applicable to all American residents, whether or not they live in Indiana. As of 2013, the first $5.25 million you give away during your lifetime are exempt from taxation. So, only the ultra-rich and ultra-generous Americans have to worry about it. State gift taxes are different. Although most states do not tax gifts, some states, such as Indiana, include a tax on gifts in their inheritance tax law. Indiana's inheritance tax law requires Hoosiers to pay taxes on gifts given in contemplation of death. Any gift, money transfer or bargain sale made within a year of a person's death is presumed to be a gift in contemplation of death and is therefore taxable, unless you can prove otherwise.
Indiana Inheritance Tax Abolished
As of 2013, 21 states and the District of Columbia have some type of inheritance tax. However, the trend among states is to eliminate or reduce the burden of inheritance taxes. In 2012, Indiana's inheritance tax was abolished by the legislature. The tax was phased out by increasing the tax credit granted to taxpayers by 10 percent every year, starting from 2012. This meant Indiana's inheritance tax, along with its gift tax, would be completely eliminated by 2022.
Medicaid in Indiana
In Indiana, Medicaid is administered by the Department of Family Resources and paid for with federal and state funds. The program helps patients finance a wide variety of medical treatments. In 2010 alone, Hoosiers spent more than $5.9 billion in Medicare-funded medical care. The Department of Family Resources determines eligibility based on medical needs, assets and income levels. This prioritizes the use of the limited funds allocated to Medicaid for those who need it the most and requires those who have savings to pay for their own medical care.
Indiana's Medicare Gift Rules
Expensive medical treatments and long-term care can quickly exhaust a family's life savings. For this reason, some people give away their money and property so they can qualify for Medicaid support earlier and thereby shelter their assets. However, since 2009, Indiana's Family and Social Services Administration requires Medicaid applicants who have given away money or assets in the past five years to undergo a penalty period during which they do not qualify for Medicaid support. The length of the penalty period is calculated by dividing the money given away by the average cost of a nursing home where the applicant lives. For example, if you transferred $50,000 to your children and the average cost of a nursing home in your area is $5,000 per month, your penalty period would be 10 months.
- National Academy of Elder Law Attorneys: Recent Changes to Medicaid Rules
- Indiana Government: Low-Income Assistance Medicaid
- Indiana Government: Indiana Inheritance Tax General Instructions
- Forbes: Where Not to Die
- State Health Facts: Total Medicaid Spending FY2010
- DHB Law: Planning for the Cost of Nursing Home Care
Andrew Latham has worked as a professional copywriter since 2005 and is the owner of LanguageVox, a Spanish and English language services provider. His work has been published in "Property News" and on the San Francisco Chronicle's website, SFGate. Latham holds a Bachelor of Science in English and a diploma in linguistics from Open University.