Gifting Tips for Seniors

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Gifting for Seniors: A Guide to Avoiding Costly Mistakes

Many seniors wish to share their financial success with their loved ones by giving gifts during their lifetime. While this generosity is admirable, it’s a path filled with hidden financial traps. Without proper guidance, a well-intentioned gift can lead to unexpected taxes, jeopardize eligibility for long-term care, and even cause a loss of control over your own assets.

The Two Sets of Rules: Tax Law vs. Benefits Law

One of the biggest sources of confusion is that the rules for federal gift taxes are completely different from the rules for government benefits like Medicaid. What is perfectly acceptable for tax purposes can be a disastrous mistake for long-term care planning.

  • Federal Gift Tax Rules: For 2025, you can gift up to $18,000 per person, per year, without having to file a gift tax return. A married couple can combine this to gift $36,000. Even if you gift more, it’s unlikely you will owe any tax, as it simply counts against your substantial lifetime gift and estate tax exemption (over $13 million per person).
  • Government Benefit Rules: This is where the danger lies. Programs like Medicaid and Special Assistance do not care about the federal gift tax exclusion. Any gift, no matter the amount, can be penalized.

The Capital Gains Trap: Gifting Appreciated Property

Seniors sometimes create a significant tax bill for their children by gifting property that has grown in value, like stocks or real estate. When you gift appreciated property, the recipient also receives your original tax basis (what you paid for it). If they sell the property, they will owe capital gains tax on the entire difference.

In contrast, property that is inherited at death receives a “step-up” in basis to its fair market value at that time. This means the heir could sell the property immediately and owe little to no capital gains tax.

The Long-Term Care Trap: Look-Back Periods

This is the most common and costly mistake. When you apply for long-term care assistance, the government scrutinizes your financial history. Even small gifts can lead to a penalty period where you are ineligible for benefits.

  • Medicaid: Has a five-year look-back period for any gifts or transfers made for less than fair market value.
  • Special Assistance: Has a three-year look-back period.

Strategic Medicaid planning and guidance on qualifying for Special Assistance are essential to navigate these complex rules without penalty.

The Control Trap: The “Gift-Back” Dilemma

Gifting away assets means you lose control over them. While North Carolina law allows for a “gift-back” to cure a transfer penalty for Medicaid, this relies on the goodwill of the person who received the gift. If your child or grandchild is unable or unwilling to return the funds, you may be left unable to qualify for the care you need.

The Solution: Strategic Gifting as Part of Your Plan

Gifting can be a wonderful tool, but it must be done as part of a comprehensive life care and estate plan. An experienced elder law attorney can help you understand all the implications and develop a strategy that achieves your goals without creating unintended consequences. Call our office at (919) 256-7000 to schedule a consultation.