7 Considerations Before Making a Gift
By Kathy L. McNair, Esq.
The holidays will soon be here. You may be thinking about giving your loved ones a sizeable gift. It is very generous of you to consider making gifts to your family or friends, and they are likely to appreciate the gift. However, please consider the consequences of gifting, before deciding if this is appropriate for you.
1. Gifts should only be given if your needs are met: Please make sure that your own needs are met before making gifts to others. Once you give the money away, you won't be able to get it back.
2. Medicaid "looks back" five years at all gifts made: If you need Medicaid or MassHealth to pay for nursing home care , you must disclose all gifts made within five years of applying. A penalty period will be imposed for gifts made within five years. Generally, Medicaid scrutinizes gifts made over $1,000. If you have made gifts over this amount within five years of applying for Medicaid, you may need to ask the recipient to return the money.
3. You must file a gift tax return for gifts over $14,000: If you make an annual gift of greater than $14,000 per person, per year, you are required to file a gift tax return with the IRS. However, you will likely not owe any tax. As of 2014, the IRS allows each person to gift up to $5.34 million during a lifetime, before a gift tax is imposed. The IRS requires the filing of a gift tax return so they can keep track of the amount given. Payments made for tuition, medical and dental expenses, paid directly to the provider, do not count toward this limit.
4. Gifts to your children may be considered marital property: If you wish to make a gift to a married adult child, this money may be considered marital property in a divorce. If you wish to make a gift to your child and do not want it to be considered marital property in the event of a divorce, a trust can be established for the benefit of your child.
5. Consider tax consequences when giving away an interest in real estate or an asset that has appreciated in value: If you give away an asset that has appreciated, you must consider the capital gains tax consequences of the gift. It is better to give a gift that has not appreciated in value. Often, it is best to hold assets that have appreciated in value until death to receive a "step up" in basis.
6. Trusts allow you to give gifts, but retain control over the money: If you would like to make a gift, but you wish to retain control over funds or who can use the funds, a trust can be drafted to ensure that the funds are used as you intend.
7. For individuals in Massachusetts with estates over $1 million gifting may help reduce estate taxes: In Massachusetts, individuals that die with assets exceeding $1million must pay estate taxes. Gifting may be helpful to minimize the estate taxes due at the end of your life. Individuals or married couples with estates exceeding $1 million should consider ways to reduce their estate tax liabilty, including establishing trusts and considering gifting.