Gifting loved ones your assets to avoid the hassle of estate planning seems like a straightforward solution. However, relying on this approach alone can create more problems than it solves, potentially leading to unintended complications.
Here’s why gifting your assets is not enough to secure your legacy or protect your loved ones’ interests.
There may be tax consequences
The IRS sets annual and lifetime gift tax limits, and exceeding them can create unexpected financial burdens. For instance, you can gift up to $18,000 annually without filing a gift tax return in 2024. Anything above that will count toward your lifetime exclusion limit of $13.61 million.
It’s worth noting that these limits may decrease in the years to come, and you might unintentionally expose your estate to hefty taxes if your estate plans are solely tied around gifting.
Loss of control over assets
The assets you gift your loved ones no longer belong to you but to the recipient. If they face legal troubles, like a divorce or bankruptcy, the asset you intended to support them could get lost. This lack of control can be a significant drawback, especially for assets meant to provide long-term financial security.
Medicaid and long-term care concerns
Gifting can backfire if you later need Medicaid for long-term care. Medicaid has a five-year look-back period, where significant gifts could disqualify you from benefits. This could leave you unable to cover nursing home costs and other long-term care expenses when you need them most.
A balanced approach works best
Estate planning isn’t only about giving things away. It’s also about protecting your assets and ensuring they’re used wisely. Gifting can be a useful estate planning strategy, but relying solely on it is too risky. A well-rounded plan that combines gifts with tools like trusts and a will works best.
Seeking legal guidance can help you navigate the complexities of estate planning and create an efficient plan tailored to your unique situation and needs.