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November 14, 2013

SMART MONEY: Look-back period doesn't apply to simple gifts

DEAR BRUCE: I have a question about the look-back period. When you talk about giving someone $14,000 tax-free a year, is this money they would look to recover if the look-back period has not been met? If I gave a granddaughter this money, let's say for a car or whatever, would they be able to come back to her for the money if I became ill within that five-year period? — Peg, via email

DEAR PEG: I am not sure why you are asking about a look-back. The look-back is only pertinent when you have collected money under Medicaid or some similar government-sponsored program and you have given away money that would otherwise be expected to be used as repayment.

In other words, say you are in a nursing home and you give your money away, whether it's $14,000 tax-free every year or some other method. Unless you do this at least three years before you collect welfare, the government can legitimately object, saying you can't give your money away because you're doing it to impoverish yourself so the government will pay your expenses. You would be seen as trying to avoid paying your own bills.

I don't know of any other circumstance where a look-back has an application. It could be that if you were giving money away like crazy, and then die leaving debts behind, the creditors will find out you disposed of money that way. They in turn might go to the recipients and demand the money be returned.

DEAR BRUCE: I am writing to get your thoughts relative to writing a newspaper column. I have written pieces for 2 1/2 years. Within the last year I offered the paper another column titled "Nonprofit Briefs." The former column appears on the first Sunday of the month and the latter on the third Sunday.

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