The $14,000 figure is the amount of the current gift tax exclusion (for 2015 and 2016), meaning that any person who gives away $14,000 or less to any one individual does not have to report the gift to the IRS, and you can give this amount to as many people as you like. If you give away more than $14,000 to any one person (other than your spouse), you will have to file a gift tax return. However, this does not necessarily mean you’ll pay a gift tax. You’ll have to pay a tax only if your reportable gifts total more than $5.45 million (2016 figure) during your lifetime.
Many people believe that if they give away an amount equal to the current $14,000 annual gift tax exclusion, this gift will be exempted from Medicaid's five-year look-back at transfers that could trigger a waiting period for benefits. Nothing could be further from the truth.
The gift tax exclusion is an IRS rule, and this IRS rule has nothing to do with Medicaid’s asset transfer rules. While the $14,000 that you gave to your grandchild this year will be exempt from any gift tax, Medicaid will still count it as a transfer that could make you ineligible for nursing home benefits for a certain amount of time should you apply for them within the next five years. You may be able to argue that the gift was not made to qualify you for Medicaid, but proving that is an uphill battle.
If you think there is a chance you will need Medicaid coverage of long-term care in the foreseeable future, see your elder law attorney before starting a gifting plan.
Reference: Elder Law Answers