Gifting Money to Grandchildren for Education or Other Purposes & Medicaid Eligibility

Summary
Gifting money to anyone other than your spouse, even paying for a grandchild’s education, can lead to Medicaid ineligibility. It depends on when you gave the gift, the type of Medicaid Long Term Care program and the state where you live. Seniors applying for Nursing Home Medicaid or HCBS Waivers in most states are not allowed to gift money (or other assets) for a 60-month period prior to their application date. Doing so violates the Look-Back Period and will lead to a period of ineligibility.

Definition: Look-Back Period

To make sure Medicaid Long Term Care applicants don’t just give away their assets to get under the asset limit and become Medicaid eligible, states use a Look-Back Period. In most states, the Look-Back Period is 60 months (five years). This means the state will look back into the applicant’s financial history for the 60 months before they submitted their application to see if they gave away any assets, including money, or sold them at less than fair market value. The applicant must provide enough documentation to clearly illustrate their financial situation and prove they have not give away assets. For a list of documents you might need when applying, see our Medicaid Application Documents Checklist.

Gifting, Look-Back & the 3 Types of Medicaid

There are three types of Medicaid Long Term Care programs relevant to seniors: Nursing Home Medicaid, Home and Community Based Services (HCBS) Waivers and Aged, Blind, and Disabled Medicaid. Nursing Home Medicaid covers all nursing home expenses, including room and board. HCBS Waivers pay for long-term care services in supports in the homes of beneficiaries who would need to reside in a nursing home otherwise. ABD Medicaid is healthcare coverage for seniors age 65 and over who have limited financial resources, and it will provide long-term care benefits for recipients who have a medical need for them.

The Look-Back Period does not apply to ABD Medicaid. It only applies to Nursing Home Medicaid and HCBS Waivers. However, ABD Medicaid applicants and recipients should be careful about gifting money, because they might eventually need one of the other two Medicaid Long Term Care programs.

California and New York
Now, to explain the exceptions. In California, there is no Look-Back Period for HCBS Waivers and it’s 30 months for Nursing Home Medicaid, although that will be phased out by July 2026. In New York, there is a 60-month Look-Back Period for Nursing Home Medicaid, but there is no Look-Back Period for New York’s Community Medicaid (similar to HCBS Waivers in other states), although that may change in 2025. As in all states, there is no Look-Back Period for ABD Medicaid in California or New York.

Consequences for Violating the Look-Back Period

If you violate the Look-Back Period by giving money to your grandchildren (or any kind of assets to anyone other than your spouse), the penalty is a certain amount of time that you will be ineligible for Medicaid. It could be months, or ever years.

The length of that penalty is calculated using the state’s “penalties divisor,” which can change depending on the state. Some states take the dollar amount of the violating assets and divide it by the average monthly cost of long-term care in the area to calculate the length of the penalty. The penalty divisor can be complex, so we recommend consulting with a professional like a Certified Medicaid Planner or an Elder Law Attorney to get the exact details for your situation.

If the Look-Back Period Is Violated

If you know you violated the Look-Back Period before applying, you can simply wait out the 60 months and then apply. Even if you gave away large amounts of money or valuable assets, it won’t be a Look-Back Period violation if you did it prior to the 60-month Look-Back Period (or 30 months or less in certain cases in California and New York).

In fact, this can be part of a Medicaid Planning strategy for people who have assets over the limit but need to qualify for Medicaid Long Term Care. This can be complicated, so it’s advisable to consult with a professional like an Elder Law Attorney or a Certified Medicaid Planner before attempting such a method.

If you’ve violated the Look-Back Period but don’t have time to wait it out, your state Medicaid may remove a penalty period if all “gifted” money and / or assets are returned in their entirety. If only a portion of gifted assets are returned, some states might reconsider one’s penalty period and shorten it accordingly. The return of assets may push you over Medicaid’s asset limit, but there are alternative pathways to eligibility for seniors with too many assets.

Some states may also offer undue hardship waivers that will waive the penalty period for violating the Look-Back Period. This usually requires the applicant taking all possible action to recuperate gifted assets (including legal action), being without medical care otherwise and being in danger without long-term care provided by Medicaid.

Federal Gift Tax Exclusion

The federal gift tax exclusion sometimes causes confusion when it comes to Medicaid rules and eligibility. As of 2023, the IRS (Internal Revenue Service) allowed one to gift up to $17,000 per recipient without filing a gift tax return. This means the recipient does not have to report the gift nor do they have to pay taxes on it. Some people mistakenly think this rule extends to Medicaid. It does not. Gifting under the federal gift tax exclusion violates Medicaid’s Look-Back Period.