Gifting Tips for Seniors

Seniors often wish to make large gifts to loved ones prior to death. Unfortunately, seniors can lose control by gifting property in advance. With good advice, you can ensure that your property is protected for yourself and future generations while preserving full or partial control.

Everyone can gift $14,000 a year per person without filing a gift tax return. Married couples can double their gift tax “exclusion” to gift $28,000 per person per year. Gifts over $14,000 in one year to one person require you to file a gift tax return that is due when you file your income tax return. It is the maker of the gift that is responsible for a gift tax return required and any gift taxes due. However, it is unlikely that you will owe any gift tax, as each person has a lifetime exemption of $5.34 million. As a recipient, you will not file a return or pay gift tax or income tax on any gifts that you receive. Gifts are not considered income for tax purposes. Obviously, you must pay income tax on any later income you receive from investing your gift.

Sometimes, seniors create capital gains taxes for their children by gifting them appreciated property during their lifetime. Parents often don’t realize that a gift of appreciated property results in their child taking the property’s original income tax basis. If the child sells the property, he or she will pay capital gains tax on the difference between the cost of the property when originally purchased by the parent and its current fair market value. In contrast, children who receive property from their parents at death inherit a “step up” in income tax basis, which is its fair market value at time of death. Children who sell inherited property soon after receiving it will pay no capital gains taxes.

It’s important to note that federal gift tax rules differ from government assistance program eligibility rules. Both Medicaid (for nursing facility care) and Special Assistance (for assisted living facility care) implement sanctions for gifting. Historical Christmas and birthday gifts generally are not problematic. However, seniors must be particularly careful when gifting large amounts, as these can backfire and prevent eligibility. Medicaid looks back five years for gifts to anyone other than your spouse, and creates a penalty period based on the amount of money (or value) transferred. Special Assistance looks back three years. Therefore, even those gifts within the annual exclusion limit will result in sanctions if made during the “look-back” period.

Finally, seniors can lose control of their property through gifting. Both the Medicaid and the Special Assistance programs allow seniors to avoid sanctions if they receive a “gift back” of transferred property. This requires the person to whom you gifted property to return either the exact gift or a gift of equal value in North Carolina. (The “gift-back” rules vary from state to state.) Unfortunately, seniors who require government assistance may not qualify if a child refuses to return or can’t return the property they received. Don’t expect a grandchild to return the tuition payment you made for them; however, the grandchild’s parent may be able to transfer back something of equal value in North Carolina.

If you or your loved ones have questions about gifting, consider W.G. Alexander & Associates – we are experienced attorneys who offer a unique blend of asset protection, Elder Law and estate planning. You can also attend our free seminars, learn more through our website at www.wgalaw.com, or call us at (919) 256-7000.

Attorney Bill Alexander discusses these issues and more every Tuesday morning on W.G. Alexander & Associates’ radio program, “Asset Protection Today,” on TalkRadio 850 WPTK (AM). Be sure to listen from 9:00-10:00 AM.