On the surface, giving away your assets while you’re alive may sound like a smart way to avoid probate and help your loved ones. However, relying solely on gifting instead of a solid estate plan can lead to unexpected complications for you and the people you care about.
Here is why you should think twice before using gifting as your main estate strategy.
You could trigger unnecessary taxes
The IRS allows you to gift up to a certain amount annually without triggering gift taxes. Once you exceed that, you’re eating into your lifetime exemption for gift taxes, possibly setting your estate up for a surprise tax bill later on.
Additionally, the person receiving your gift may get hit with a higher capital gains tax when they sell that asset. Passing such assets down through an estate can significantly reduce or eliminate such taxes.
It might hurt your Medicaid eligibility
Gifting can come back to haunt you if you require long-term care in the future. Medicaid has a look-back period, where they examine asset transfers. Any large gifts during that period may trigger a penalty period where you’ll be ineligible for benefits even if you have no money left. It can be a tough position to be in if you suddenly need nursing home care.
You lose control – permanently
Once you gift something to someone, they become the legally recognized owner. It means that if your situation changes or you need those assets back, you may be out of luck. In addition, the person you gave the asset to could run into financial trouble, such as divorce, debts or lawsuits, and lose it.
A proper estate plan gives you options
A well-crafted estate plan can help you minimize taxes, protect assets, avoid probate and preserve your eligibility for government support programs while keeping you in control. Getting tailored legal guidance can help you take informed action toward protecting your legacy and securing your loved ones’ interests.
