Tis the season of giving, however anytime of year can be a bad time to make a gift.
You would think that gift giving was solely between the giver and the recipient, but alas there is another party to every gift. The Government.
If you might possibly apply for Medicaid within the next five years, you shouldn’t be making any gifts. Medicaid is a means tested program which is one where a person qualifies based on income and assets. If you reduce you assets in order to qualify then you can be penalized by be disqualified from the program for a period of time based on how much you gave away.
Our government taxes the increase in value of an asset when you sell it. This is called a capital gains tax and what you bought it for is called the basis. If you transfer the asset on death the basis increases from the price you paid to the value on your death. This saves your death beneficiaries on taxes when they sell the asset.
But if you give the asset away during your lifetime the basis goes with it and your recipient will have higher tax bill when they sell.
The issue most commonly arises with the transfer of real estate, a business, or investments.
From a tax point of view a transfer on death is taxed less than a lifetime transfer.
Lastly, there is a federal gift tax. If you make a gift to any one person of more than $19,000.00 you need to file a gift tax return. You may not owe any tax, but you have to inform the government by filing a return.
Before making any large gifts this season, get some legal advice.Â
Attorney Rob Morris is an attorney at Hammerle Morris Law Firm, a boutique law firm offering services in estate planning, probate, guardianship, business law, litigation, and real estate. Contact him at (972) 436-9300. This article does not constitute as legal advice.
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