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Why gifting assets may not be right for you

On Behalf of | Dec 23, 2020 | Estate Planning |

If you give away assets while alive, it can reduce taxes paid on your estate when you die. However, before you go giving away everything, it is important to realize two things. You probably have nothing to gain from doing so, and secondly, it might even harm you to do so.

Most people do not need to gift assets

People gift assets to reduce the amount of federal estate tax payable. However, you currently only pay this tax on anything over $11.58 million. So unless you are incredibly wealthy, there is no need to worry about it. The exemption may lower in the future.

You may need assets later to pay for health care

Just because you are financially comfortable today does not mean you will be so in a few months. Things can change rapidly. You could lose your job or business, go through a disastrous divorce or need to drain your savings to survive.

If you give assets away, you could struggle to pay medical expenses if you get ill or have an accident. While your children might be willing to help you out by returning assets you gifted them, they may not be able to. They may have already used them.

New Jersey Medicaid rules are not lenient toward gifting

Under New Jersey law, if you need long-term care, Medicaid authorities will look back over your last five years’ finances. If they see you made gifts of assets, they may assume you did this to avoid health care costs. They could count the assets you gave away to show you have funds to pay for the health care yourself, without needing assistance. It could leave you and your family scrambling to find a way to pay.

As fulfilling as it can be to give assets away while you are still alive, you need to ensure you have enough set aside should you need long-term care. Balancing your wishes and needs can be tricky when estate planning. It requires knowledge of the different estate laws and taxes that could apply.