Monday, July 7, 2014
While gifts can serve as effective estate planning tools, they can also cause problems, both for the donor and the recipient. Below are a few questions to ask yourself before making a gift:
- Why are you making the gift? Are you gifting as an expression of love or is it for tax planning and long-term care purposes? If it is the latter, make sure there is a benefit to the transfer. If the value of your assets totals less than the estate tax threshold in your state, your estate will pay no tax.
- Are you keeping enough money? If you are making large gifts, you may need to do budgeting to make sure that you will not run short for your basic needs.
- Is it really a gift?Are you expecting the money to be paid back or for the recipient to perform some task for you? Make sure that the beneficiary of your generosity is on the same page as you.
- Are you sure it is a gift? A gift may not really be a gift is if you expect the recipient to hold the funds for you or let you live in or use a house that you have transferred. These are “gifts with strings attached.”
- Is the gift good for the recipient? If the recipient has special needs, the funds could make her ineligible for various public benefits, such as Medicaid, Supplemental Security Income or subsidized housing. Making many gifts to the same person may create a dependency that interferes with the recipient learning to stand on his or her own two feet.
See 5 Questions to Ask Before Making Gifts for Medicaid or Tax Planning, Elder Law Answers, June 27, 2014.