Tis the season to be gifting…or so many of the headlines would suggest these days. Gifting can be a very effective estate planning tool, and for some, it accomplishes their more personal objective of providing for their children and/or other loved ones when they need it most (which could be now).
That being stated, some of the new stories would suggest that the gifting opportunities exist for everyone. This is concerning, because there may be pitfalls associated with a gifting strategy.
So, before you engage in any major gifting initiative, you should discuss it with your estate planning attorney and tax advisor.
While this is by no means an all-inclusive list, here are 3 gifting pitfalls to be aware of:
- Outright gifts without risk evaluation – gifting gifts outside of trust to your children or loved ones may end up with unfortunate consequences. Assets held outright may be subject to creditor attack, loss in a divorce, or other lawsuits. Nobody wants to think these things can happen to their children, but they happen every day. If you want to protect the gifts being made to your loved ones, you should discuss with your estate planning attorney whether or not there are strategies available to you that can help avoid these problems.
- Implementing specific gifting strategies without understanding pros/cons– for example, there could be capital gains consequences resulting from a gift to a loved one that will not become a practical issue for them until a later date…sort of a ticking time bomb. There may be strategies however that can eliminate or ameliorate this problem. The moral of the story here is that you should be in discussions with your attorney and tax advisor to ensure that you understand the benefits and drawbacks of any particular gifting strategy.
- Gifting without taking into account Medicaid issues – remember that gifts may result in a penalty period being imposed when applying for Medicaid. Some states may impose other penalties (e.g. the person to whom you made a gift could be subject to liability) for gifts made when the donor is seeking or receiving needs-based benefits such as Medicaid. Before making any gifts, you should speak with an attorney who can counsel you on the requirements of Medicaid and other needs-based benefits.
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