In this episode, Tim addresses key considerations of lifetime gifting.
Podcast transcription:
WRVO Producer Mark Lavonier:
This podcast is part of the series Estate Planning Pro Tips, hosted by attorney Tim Crisafulli of Crisafulli Estate Planning and Elder Law P.C., an estate planning, probate and elder law firm serving clients throughout central New York. A former school teacher, Tim explains complex legal subjects in an easy-to-understand way. The commentaries focus on the central aspects of estate planning, such as wills, trusts, asset protection, long-term care, and probate. And now here's Tim.
Tim Crisafulli:
At some point when I'm meeting with a client for estate planning, the topic of gifting arises. The client says something like, “I heard that I can give away a certain amount per year. Is that true?” Well, it's complex. The reason why gifting is so tricky is because different answers apply, depending on whether the question arises in the context of paying for long-term care, such as in a nursing home, or whether the question arises in the context of taxation.
First, let's discuss long-term care. If ever an individual needs long-term care, such as in a nursing home, there is a good chance that the individual will sooner or later seek Medicaid eligibility to cover for that care. Part of applying for that type of Medicaid coverage involves disclosing the extent to which any gifts were made during the past five years before seeking the benefit. This is known as the five-year lookback period. If it turns out that the person in need of a nursing home and Medicaid coverage made gifts during the five years before seeking coverage, then the person will be denied coverage for a period of time related to the value of the gift. That period of denial is called the penalty period. So the more you give away during the five years before seeking Medicaid coverage for your nursing home stay, the longer a period of time you will have to do without the Medicaid benefit. In the end, if a client asks about gifting in the Medicaid qualification context, the answer is you may gift all you want, but beware—there may be a negative consequence if you give away assets during the five years before seeking Medicaid coverage. There are always ways around this with effective estate planning, but that's the starting point of the analysis.
Now, we leave behind nursing home and Medicaid considerations, and we turn to tax law. To understand, we need a quick primer on gift taxes. We all know there are many flavors of taxes – income tax, property tax, sales tax, and the list goes on. Gift tax is just another delicious flavor of taxes. Here's how it works. Each person may give away a certain chunk of assets during life without ever having to pay any gift tax. If you give away more than your allotted chunk, you have to start paying gift taxes on that excess. Not to worry, it's a big chunk. We are each allowed to give away $13.61 million in 2024 without having to pay gift tax. What a relief, right? That said, the Internal Revenue Service keeps track of how much people give away each year through gift tax returns. Each time you make a gift, you eat into a tiny piece of your overall $13.61 million chunk. And the IRS keeps track so that it can start taxing you if you ever exceed your allotted amount. But the IRS has no interest in tracking small gifts, like $50 in a birthday card to a grandchild. So Congress created an annual gift tax exclusion amount, which is set at $18,000 for 2024. This means that as long as the total amount of gifts you make to any particular individual during a single calendar year does not exceed $18,000, then you don't even have to file a gift tax return. So the answer to the client question “How much can I give away each year?” in a tax context is – all you want. If you give less than $18,000 to an individual, there is no reporting requirement. If you give away more than $18,000 to an individual, you'll need to file a gift tax return. But you won't have to actually pay any taxes until you've given away over $13.61 million over the course of your lifetime. In sum, when a client asks the question, how much can I give away each year? An analysis of Medicaid qualification and gift taxes is needed. You can give away all you want, but there may be consequences in each of those realms.
Note on Updated Tax Figures (2025):
Because tax laws change annually, the figures mentioned in this 2024 podcast episode have increased. For current planning purposes (2025), please use the following updated amounts:
- Annual Gift Exclusion: $19,000 (up from $18,000 in 2024).
- Lifetime Gift & Estate Tax Exclusion: $13.99 million (up from $13.61 million in 2024).
