As the end of the year approaches, many may be thinking about utilizing the $13,000 annual gift tax exclusion. The annual gift tax exclusion makes it possible to give money to any number of people without having to pay gift or estate taxes.
Annual gifting to children or grandchildren allows a person to remove certain assets from the estate and eliminate the likelihood that the assets will appreciate and become a more significant part of a taxable estate. One can also split the gifts with a spouse to double the amount of money given.
Annual exclusion giving can be an important consideration for those with taxable estates. Currently estates valued at less than $3,500,000 will not owe estate taxes. Annual exclusion gifting makes little or no sense for those not facing estate taxes.
Many people with estates not exceeding the taxable limit get caught up in the annual exclusion bandwagon and make annual exclusion gifts because they believe that they are "legal." It is true that no gift tax return will need to be filed if an annual exclusion gift is made no matter what the size of the estate.
However, gifts of any size cause ineligibility periods for Medicaid coverage. The Deficit Reduction Act of 2005 made gifting rules more onerous than they were previously. Now ineligibility periods do not begin until a person has applied and is otherwise eligible for services. So if gifts are made and an applicant's assets, income and health makes him eligible for Medicaid, he will not be able to receive the critical benefits until he waits through an ineligibility period during which time he will not have resources to pay for care. This rule can be devastating to a family who cannot return the gift.
Asset preservation in anticipation of long-term care is possible with the use of certain asset protection restructuring, however, asset preservation cannot be accomplished effectively through annual exclusion gifting.
Jill Burzynski is the only board-certified elder law attorney in Naples. Reach her at (239) 434-8557 or firstname.lastname@example.org. To have any of the Burzynski Elder Law team speak to your group, call Angela at Burzynski Elder Law.