Gifting of Assets May Be the Most Misunderstood Estate Planning Concept
Estate planning professionals spend a lot of time educating clients on the various details involved with good estate planning. There are ways to leave assets to loved ones that can cut down on taxes and lighten the loved one’s burden. But one area of estate planning that confuses people is the idea of gifting assets. It sounds like a great idea to leave assets behind as a gift, but it can be disastrous for your beneficiary if it is not done properly.
Lifetime Gift Tax Maximum
One of the most important aspects about gifting assets that people do not understand is that the person giving the gift is the one who experiences a tax event, and not the recipient. Some people think that gifting a car to their child by making the child pay $1.00 means that there will be no tax implications. But the fact is that if the car is worth $10,000.00, then you just took on a $9,999.00 tax event.
This all sounds intimidating, but the lifetime gift tax maximum makes everything easier. In 2018, you can gift up to $11.180 million in assets to anyone and still not have to pay a gift tax. However, any gifts you gave during your lifetime will reduce your estate gifting by that much. If you gifted $180,000.00 away during your lifetime, then your estate can only gift $11 million without a tax event taking place.
Paying Taxes On Gifts
When you transfer assets as a gift, you have to file a gift tax return. If you have passed away, then your estate would be responsible for filing the return. The $11.180 million maximum threshold usually eliminates any income tax from being reported, and gifts of $15,000.00 or less do not even require a gift tax return. Most people are completely unaware of exactly how easy it is to gift assets from an estate as it commonly assumed that someone is going to have to pay income tax on that gift.
Medicaid Consequences
While you are still alive, gifting assets can cause problems if you are applying for Medicaid to help pay for an assisted living arrangement. Medicaid will look at the five years prior to your application date to see if you have gifted any assets of any significance. For example, if you gifted your home to your children two years before your Medicaid application, then that could cause Medicaid to delay approval for your assisted living funding for several months.
If you have questions about gifting assets with your estate, we recommend that you give our lawyers a call. Our trusted estate planning lawyers will answer any questions you may have, and we can become the legal team that helps you to put together a stable and reliable estate.