Understanding Gifting


Legally speaking, gifting has nothing to do with bows and wrapping paper. Instead, it’s about the fundamentals of transferring money from one person to another. While less heartwarming than birthday celebrations and end-of-year holidays, gifting wealth is a highly desirable aspect of estate planning. Here are some things worth knowing about how it functions.

Gifting and Income Taxes

You can gift up to $15,000 to someone without paying taxes. Amounts beyond that require filing a gift tax return. This applies to every gifting individual, meaning you can transfer endless amounts of money to different people without paying taxes so long as you’re under the limit. Additionally, your spouse can duplicate your gift-giving. Therefore, you can collectively gift the same person up to $30,000 tax-free.

Gifting, Medicaid, and the Veterans Administration

With few exceptions, you are penalized if it’s determined that your gifting is being done in an attempt to qualify for Medicaid. Exclusions include gifting to a disabled child or before an unexpected diagnosis. To make sure your gifting does not interfere with medical coverage, consult with a legal professional. 

A similar constraint applies to the Department of Veterans Affairs. The VA looks at your past three years of gifting activity, whereas Medicaid keeps tabs on the last five. This organization only imposes a penalty if gifting reduces your assets below the acceptance limit. There’s nothing to worry about if you’re already underneath their current $127,061 bar.

Gifting and Control

It’s important that you maintain control over enough assets to assure financial security over your lifetime. One way of doing this while still gifting is by establishing an asset protection trust. These accounts name specific monies as gifts, but they put limitations on who and how they can be accessed prior to your death. Decide with an estate planning attorney whether giving up some control over assets makes sense for you.

Gifting and Inheritance Taxes

Your children should not need to pay inheritance taxes on your gift. The only case in which this isn’t true is if you gift more than $11.4 million over your lifetime. In this case, an estate tax return would need to be filed, and taxes would have to be paid before disbursements to beneficiaries. It’s a privilege to gift money to loved ones and make a difference in their lives. However, there are rules to doing so that must be followed. Connect with an estate administration lawyer to make sure you’re gifting effectively and avoiding negative consequences.