It may be tempting to avoid estate planning by giving away assets to loved ones when you are alive instead of creating a will or trust. After all, you will hand down assets to your heirs like you would with your estate plans.
It may seem an easy way out, but it can have some serious pitfalls you should be aware of before making such a move. Here is what you need to know.
You will lose control
When you transfer ownership of your property to someone else, they become the legally recognized owners. You cannot change your mind or revoke the transfer unless there are underlying issues. For instance, if you give your house to your child, you cannot prevent them from selling or renting it out or dictate who should live there.
You expose the assets to unnecessary risk
Giving away assets exposes them to creditors, lawsuits or other third parties. If the person you give your asset to has any debts or legal issues, their creditors or claimants may seize or garnish your gift. Similarly, your gift may be subject to division or alimony payments to their ex-spouse after divorce.
It can come with tax consequences
You may have to pay gift tax when you gift assets to loved ones depending on their value. It can sum up to a significant amount, yet you could have avoided such expenses with the proper estate plans.
It can affect your eligibility for government benefits
If you give away assets and later find yourself needing government assistance programs, such as Medicaid or Supplemental Security Income (SSI), the gifts may affect your eligibility. Many government programs have strict asset and income limits, and transferring assets can trigger penalties or disqualifications.
Seek the necessary guidance
Giving away your assets is not a simple or risk-free way of estate planning. As such, seeking legal assistance to understand your estate planning options and help you make the right decisions is prudent.