Part 3: Lifetime giving

As an estate planning attorney, I am often asked about the best ways to protect assets and minimize taxes. One strategy that has become increasingly popular in recent years is the use of lifetime gifting. In this blog, I will discuss the benefits and potential drawbacks of lifetime gifting and how it can fit into your overall estate plan.

What is Lifetime Gifting?
Lifetime gifting refers to the practice of giving away assets during your lifetime rather than waiting to transfer them through your estate. The most common form of lifetime gifting is making annual gifts to family members or loved ones. Under current tax laws, you can gift up to $15,000 per year to any individual without incurring gift tax.

In addition to annual gifts, there are other ways to gift assets during your lifetime, including:

• Irrevocable trusts
• Family limited partnerships
• Grantor retained annuity trusts (GRATs)
• Charitable trusts

Benefits of Lifetime Gifting

There are several benefits to making gifts during your lifetime:

1. Reduce Estate Taxes: By gifting assets during your lifetime, you can reduce the size of your estate and potentially avoid or minimize estate taxes. For example, if you gift $15,000 per year to each of your children and grandchildren, you can remove a significant amount of assets from your estate over time.
2. Asset Protection: Gifting assets during your lifetime can also provide protection against creditors. Once you gift an asset, it is no longer part of your estate and is no longer subject to claims by creditors.
3. Income Tax Savings: If you gift appreciated assets, such as stocks or real estate, you can potentially save on income taxes. When you gift appreciated assets, the recipient takes over your cost basis. This means that if they sell the asset in the future, they will only pay taxes on the increase in value since they received the gift.
4. Provide for Loved Ones: Lifetime gifting can also be a way to provide for loved ones during your lifetime. For example, if you have a child who is struggling financially, you can gift them money to help them out.

Potential Drawbacks of Lifetime Gifting
While there are many benefits to lifetime gifting, there are also potential drawbacks to consider:

1. Loss of Control: When you gift assets during your lifetime, you lose control over those assets. You cannot take back the gift or change the terms of the gift once it has been made.
2. Tax Consequences: While lifetime gifting can potentially save on estate taxes, there are still potential tax consequences to consider. For example, if you gift appreciated assets, the recipient may be subject to capital gains taxes when they sell the asset.
3. Gift Tax: While the annual gift tax exclusion is generous, there are still limits to how much you can gift during your lifetime without incurring gift tax. If you exceed the annual exclusion, you may be subject to gift tax.
4. Medicaid Eligibility: If you anticipate needing Medicaid in the future to pay for long-term care, lifetime gifting can potentially affect your eligibility. Medicaid has a five-year lookback period, which means that gifts made within five years of applying for Medicaid may affect your eligibility.

Conclusion
Lifetime gifting can be a powerful tool in your estate planning arsenal. By gifting assets during your lifetime, you can potentially reduce estate taxes, protect assets, save on income taxes, and provide for loved ones. However, there are also potential drawbacks to consider, including loss of control, tax consequences, gift tax, and Medicaid eligibility.

It's important to work with an experienced estate planning attorney who can help you navigate the complex world of lifetime gifting and develop a comprehensive estate plan that meets your needs. If you have questions about lifetime gifting or estate planning, contact our office to schedule a consultation. We can discuss your goals, concerns, and options for estate planning, including lifetime gifting.

In addition to lifetime gifting, there are many other estate planning strategies to consider, such as creating a trust, establishing a power of attorney, and developing a plan for long-term care. We can work together to create a customized estate plan that meets your unique needs and circumstances.

At our law firm, we understand that estate planning can be a complex and emotional process. That's why we take the time to listen to our clients, answer their questions, and provide them with the guidance and support they need to make informed decisions about their futures.

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At Marvel Law, we are here to help serve you with purpose.  Click here to email us or call us at 309-807-2885 for your FREE 15-minute consultation.  We can help to make sure that you and your family are protected.

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