If you have extra financial resources you want to share with others, you may wonder about the best way to give a large monetary gift. Many factors determine whether your gift will be welcomed and appreciated, but it’s also crucial to look at how your gift may impact your own future planning. Let’s look at 5 factors to consider before giving a large monetary gift.

Tax Considerations

When you give away large amounts of money, the IRS considers these to be lifetime gifts unless given to your dependent child. Many wealthy individuals want to avoid future estate taxes by giving away their wealth to family and friends before they pass away. 

However, if the amount you give away during your lifetime plus the value of your estate equals more than $5.34 million, your estate will owe taxes up to 40% of the total. This is called your Lifetime GIving Limit. Giving too much away now can mean paying almost half of your estate in taxes, which means less inheritance later for your family.

It is possible to give up to $15,000 each year to each person you’d like to give to. The federal government does not count this amount toward your lifetime giving limits. In other words, you don’t have to file a gift tax return at this limit. 

If you’re married, you can each give $15,000 to each person, for a total of $30,000 gift to each individual you choose. These are the gift tax exclusion amounts for 2021. In 2022, the amount will go up to $16,000 per individual.

Let’s say you and your spouse have one dependent disabled child at home and 3 grown children out on their own. Each grown child is married and has 1 child. You can give your dependent child whatever you choose. However, for each grown child, you, as a couple, could give $30,000 to each person in their family. Each family could receive up to $90,000 from you and your spouse. This amount would not count toward your lifetime giving limits. 

However, you may not have enough money to worry about Lifetime Giving Limits. Perhaps you have more than enough and want to share with those you love. Before you do that, consider your own future plans. 

Put on Your Oxygen Mask Before Helping Another

When you fly commercial air carriers, the flight attendant gives these instructions. They remind you that if you don’t put your oxygen mask on first, you may become physically unable to help someone else. The same principle applies to giving large financial gifts. Your heart may be in the right place, but your head needs a say also.

If you haven’t considered your own financial planning first, an estate planning and asset protection attorney can help you make the best future plans. Knowing your own plans informs you how best to gift money to family members and friends. It is difficult to know how best to give to others without knowing your own plans. 

For example, long-term care planning is important for your future if you’re over the age of 55. 70% of people over the age of 65 right now will need long-term care in the future. Those odds look good for needing a caregiver in the future.

However, Medicare and health insurance do not cover this expense. AND, you won’t qualify for long-term care coverage if you give high-value assets away in the 5 years before you need long-term care coverage. 

Medicaid Eligibility Spending Exceptions

You can spend money on some things that Medicaid exempts. Spending on these exempt items lets you stay eligible for future Medicaid needs. Exemptions include:

• Giving assets to your spouse
• Opening a trust for the sole benefit of your child who is blind or permanently disabled
• Opening a trust for the sole benefit of anyone under age 65 who is permanently disabled
• Your home (if you or your spouse live there) or if no one lives there, but you intend to return to it. Your home may not be worth more than $603,000 (in 2021)

However, Medicaid does not have an exception for gifts of money to charities, friends, or family Giving gifts for holidays, weddings, birthdays, or graduations can all bring about an ineligibility period.

You can also incur eligibility penalties by buying expensive items for your loved ones or by giving away items you own without getting market value for them.

Medicaid looks back over the 5 years before you apply to check what you’ve given away or sold under market value.

By doing your Medicaid planning, you can keep your assets safe and still leave a legacy for your family. A Medicaid Planning Trust can help you qualify for long-term care coverage and give your family the monetary gifts you desire to share. An asset protection planning attorney can help you optimize your assets for gifting family and friends, now and in the future.

Pay Providers Directly

If you’re concerned about giving too much for your lifetime giving limits and paying future estate taxes or you don’t want the paperwork of filing a gift tax return, consider paying directly for certain expenses. You don’t need to file a gift tax return when paying for someone’s medical or dental bills. 

You can also pay for educational expenses in this way, but know that your contribution to a college student’s tuition will directly impact their financial aid for the next year. Paying for tuition can complicate the amount of Federal grant or loan a child receives the next year. Always check with the college kid and their parents before creating an account for educational expenses or paying a college outright.

Open an Irrevocable Trust for Your Loved Ones

Irrevocable trusts do not count against you for Medicaid long-term care as long as you open it before the 5 years look-back period. An irrevocable trust has many benefits, including tax-free gifting to family and friends.

An irrevocable trust effectively removes your assets from your taxable estate. You also no longer face any tax liability on the income generated by the assets. A trust can also give away large amounts of money without affecting your gift tax limits. 

Setting up a trust allows you to give specified amounts to loved ones (your beneficiaries) at times and amounts you choose. A trustee that you appoint manages the trust and gives out the monetary gifts or assets at the appointed times and in the appointed amounts. 

A trust can give you a source of income while you need long-term care while also enabling your eligibility for Medicaid coverage. 

We Can Help

At Vail Gardner Law, we can help you plan for the future while maximizing your giving potential to your family and friends. We understand that you want to care for your loved ones by giving them all that you can. Our estate planning strategy planning includes making gifts possible along with leaving a legacy for your family. We work with you to design the best strategy for your particular situation.

Planning for the future is one way that you can help yourself stay healthy and cared for while also looking out for those you love. Contact us today to get started making your plans. We can help.