Guidelines to help when you gift to family or charity

Gifting — whether for charitable purposes or to family — often raises questions like “how much am I permitted to gift?” or “what are the tax consequences of gifting?” Other significant questions include whether you can afford to gift, how much, or whether gifting could result in your being denied government benefits in later years.

Assuming you are comfortably situated and have provided adequately for emergencies such as long term care, you might look at gifting either as a way of moving assets out of your estate or passing some of your wealth to your children before you die.

Charitable giving during your lifetime can also be a satisfying way to benefit organizations and causes you support. If structured correctly, gifting can sometimes result in tax benefits and also allow you to see your gift in action. Before you go you might take great satisfaction in knowing your gift has brought relief and happiness to others. Here are some questions you might ask.

• Who or what organizations do you want to benefit by the gift? You might consider gifting to your church to advance its programs or to an institution of learning or to benefit research to find cures for disease, to hospitals, cultural institutions, or to assist those in need for medical or other reasons. If you want a tax deduction you can check first to see whether your organization qualifies and what are the rules.

• Do you have family in need that would benefit now rather than by waiting until after your death? Would your gift spur your child to action or cause him or her to become dependent on gifting or accentuate undesirable behavior? Do you have grandchildren who will need money for college or who are buying a house or getting married?

• How do you want to gift? Do you want to give cash outright or in trust? Do you want to contribute to a college fund such as a 529 plan? Is the individual you want to benefit receiving or could he or she in the future be receiving government benefits? There are cautions here. If the child or grandchild is currently or could be on SSI or Medicaid, he or she could lose benefits by receiving your gift outright. Consult an elder law and special needs attorney if not sure. You might need a supplemental needs trust.

• Do you have enough to cover your current and future needs? Gifting needs to be considered in the context of your overall needs and assets. If you plan for long term care or intend to move to a retirement community at some point, you should include this expense in your plans and factor in the long term cost. Also consider that you and your spouse might live longer than expected.

• Consult with an elder law attorney especially if you do not have enough to support you through long term care for five years. You may have heard of the “five year lookback” rule regarding penalties for gifting under the Medicaid rules. The rule is complicated. Although it does not prohibit all transactions that could be seen as gifting during the five year period prior to requesting benefits it is precautionary. You should know how the rule is applied.

• What are the tax consequences of gifting? You might believe the government restricts you to $15,000 per year. This annual exclusionary amount relates to whether a gift tax return should be filed by the following April 15. It does not mean taxes are owed and they very rarely are. Even if you exceed $15,000 gift per person ($30,000 per couple) for each of the persons receiving the gift and file a gift tax return for larger gifts, you almost certainly do not owe gift tax when you file. The unified credit for the estate and gift tax for 2021 is $11.7 million per person.

• Will the gift be in cash or highly appreciated assets like stock or real estate? The form of the gift makes a difference and so does the recipient. Individual beneficiaries who inherit receive a “step up in basis” that is not received if the same property is gifted. Charitable gifts of highly appreciated assets might reduce your own tax burden.

There is no one size fits all for gifting. Get professional help if you need it.

Janet Colliton, Esq. is a Certified Elder Law Attorney and limits her practice to elder law, retirement and estate planning, Medicaid, Medicare, life care and special needs at 790 East Market St., Suite 250, West Chester, Pa., 19382, 610-436-6674, colliton@ collitonlaw.com. She is a member of the National Academy of Elder Law Attorneys and, with Jeffrey Jones, CSA, co-founder of Life Transition Services LLC, a service for families with long term care needs. Tune in on Wednesdays at 4 p.m. to radio WCHE 1520, “50+ Planning Ahead,” with Janet Colliton, Colliton Elder Law Associates, and Phil McFadden, Home Instead Senior Care.