Gifting as Part of Estate Planning

lancaster pa estate planning gifts

Often times I get inquiries about the ramifications of making gifts as part of the estate planning process.  There are a number of issues to consider before gifting should be done, including tax, Medicaid eligibility, control of assets and the nature of the assets to be gifted.

With respect to tax issues, here are the key points to know:  each individual now can make $11.1 million in gifts during his or her lifetime without any federal gift tax being generated; not counted against this lifetime giving amount are unlimited annual gifts of $15,000 or less to individuals; gifts made within one year of a person’s death are recaptured within the person’s estate for Pennsylvania inheritance tax purposes, and are thereby subject to state inheritance tax ranging from 4.5% for lineal relatives to 15% for unrelated gift recipients; and, finally, for gifts involving real and personal property, and liquid assets other than cash, the gift recipient takes the original basis rather than the stepped up basis of the property gifted determined as of the date of death of the person making the gift, which may cause capital gains tax when the gifted item is then sold.

In terms of Medicaid eligibility, it is important to keep in mind there is a five year look back of gifts such that there may be a period of Medicaid ineligibility for the person making the gift in amounts to be determined based on the length of time the person needs Medicaid coverage and the amount of the nursing home costs, which can now be as much as $13,000 per month.

Finally, related to the nature and control of gifts to be made it is possible that a person can continue to control the asset to be given by including life estate language in a deed, and can also make cash free gifts of real estate and stock.  Because of its cash free nature, gifting of stock can be an attractive estate planning vehicle in family owned business situations, which can reduce the taxable estate of the person making the estate while continuing to insure control of the business.

As you can see, there are a number of factors to consider before gifting should be done.  Please feel free to contact me to discuss these factors as part of your estate planning.

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