Gifts to others can play an important role in a modern estate plan. Testators with valuable personal property and financial resources may want to see their beneficiaries enjoy their inheritances. They can achieve that goal by gifting resources to their loved ones while they are still alive. Unfortunately, people may fail to understand the legal implications of the choice.
While gifts can be an important component of a robust estate plan, gifts can cause issues for beneficiaries and even the gift giver.
When are gifts a tax risk?
There are two ways in which gifts can trigger taxes. The first is when the gifts exceed the annual threshold for gift tax exemption. That threshold increases to $19,000 per recipient in 2026. Additionally, gifts made in the three years prior to an individual’s passing usually contribute to the value of the estate and could make the estate vulnerable to estate taxes.
When do gifts cause issues for the gift giver?
In some cases, gifts or transfers could cause hardship for the person being generous. If they eventually apply for long-term care benefits through Medicaid, gifts and transfers made in the five years prior could lead to a penalty. They may be ineligible for coverage for months while they are subject to a penalty.
The sooner people start planning for their legacies and for long-term care needs, the less likely they are to face complications later in life. Sitting down to discuss resources, legacy goals and possible future support needs with a skilled legal team can help older adults preserve their assets and create a viable long-term care plan.