Estate Planning Isn’t Just For The Elderly

Happy, smiling couple in their sixties.

Is this the Season for Gifting?

By: Anthony J.Enea, Esq.

With the holidays fast approaching, almost ritualistically many parents and grandparents will gift their children and grandchildren sums of money or other assets (stock, bonds, etc.) that total $14,000 or less per person per calendar year. This is a gift commonly referred to as a “personal exclusion” gift. A gift of $14,000 or less per person annually does not have any impact on one’s lifetime federal estate and gift tax credit. Thus, no part of one’s lifetime credit of $5,490,000 for 2017 is utilized by a gift of $14,000 or less per person, per annum.

Unfortunately, most Americans misinterpret this to mean that one cannot gift more that $14,000 per person per year without incurring a gift tax. However, that is not the case. If one gifts an amount in a calendar year in excess of the $14,000 permitted, he or she will need to file a gift tax return and utilize part of his or her lifetime federal estate and gift tax credit. No tax will be due unless the individual has already gifted $5,490,000 of assets and thus, has already used up their lifetime credit amount.

For example, a gift of $100,000 by a single person to another person would result in a taxable gift of $86,000. The person making the gift would not pay any gift taxes, however, the gift tax return would reflect that he or she utilized $86,000 of his or her $5,490,000 lifetime credit. It should be noted that if one is married, the couple can make a combined tax-free gift of $28,000 per person per year irrespective of whom is actually making the gift. One’s spouse is allowed to join in the gift for gift tax purposes.

If one pays the educational or medical expenses of another and makes the payment directly to the educational or medical institution, then in that event there is no limit on the amount that can be paid and one will not have to utilize any part of his or her lifetime gift and estate tax credit.

It is important to remember that although the aforestated gifts can be made without one paying a gift tax, for Medicaid eligibility purposes any gifts will create a penalty period (period of ineligibility) for Medicaid nursing home care, if the gift was made within five years of the application for Medicaid. Thus, when making gifts, it is important to be cognizant of their impact on Medicaid eligibility. As one ages, this becomes especially important.

While gifting can help achieve many goals, such as reducing the size of one’s estate for estate tax purposes, protecting assets for Medicaid eligibility and, most importantly, helping a loved one, doing so in a planned and systematic fashion with a full understanding of all the consequences is imperative.

Enea, Scanlan & Sirignano, LLP