After Thanksgiving, crowds emerge from their homes with their bellies freshly stuffed with turkey and stuffing to seek out gifts to stuff into stockings. Now is the season of giving. After spending time reflecting upon the people in our lives who we are thankful for, the natural and traditional next step is to express our gratitude through gifts.
Gifts are one of the five love languages discussed in Gary Chapman’s popular book. For many people, giving and receiving gifts is the most natural and fulfilling manner of expressing and receiving love. This is an exciting time for those who express love through gifts. Children peer through shop windows, commercials, and catalogues drooling over the latest toys and gadgets they hope to receive. With age and wisdom, though, comes the realization that there is more joy to be had in giving and bringing joy to others than in receiving. It is wonderful to be able to give gifts to those we love.
There is a lot to consider when giving gifts. To which people should you give gifts? What do they need? What do they want? What is the right amount to give, so you will not be giving too little or too much for the recipient’s comfort? What can you afford to give?
There are other legal considerations that become more pertinent with age. What gifts do you wish to leave to those you love after you have gone? Should you give to all of your children the same, or are there justifiable reasons to give in different amounts? https://keystoneelderlaw.com/estate-plan-must-children-be-treated-equally/ Is it better to give now, rather than wait for your loved ones to inherit from you? What tax implications may there be to gifting? How will the gifts you give impact your ability to pay for your future medical needs? These are important considerations, and each of them has a lot to unwrap.
Most parents assume they should give to all of their children equally, and in many cases that is appropriate, but not always. It may be appropriate to do more to provide for a child with special needs who will be less able to provide for their own care than other children who have greater means. On the other hand, if one child has received more help from the parents during their lifetimes, it could be appropriate to treat that help as part of the inheritance and leave that child a smaller portion of the parents’ estates. There may be a child who has done more work for their parents. If that is the case, it might be appropriate to provide a larger share to honor that child’s efforts. Every family circumstance is different, and your planning should be done with your particular family in mind.
Giving gifts to your children during your lifetime rather than waiting until after you pass away could be a good estate planning strategy for some families, but not for every family. There are both pros and cons to this strategy. On one hand, it may be more valuable to your children to receive gifts sooner rather than an inheritance later. If there is a dire financial need, a well-timed gift may save the recipient the cost of interest and penalties on a bank loan. It may also save them some inheritance tax down the road. The recipient of a gift does not pay tax on the gift, whereas the recipient of an inheritance does pay inheritance tax in Pennsylvania. There is such a thing as Federal gift tax. A person who is giving away large amounts of money or property should consult a tax professional about gift tax implications, and may be required to file a gift tax return, but the majority of people will not have to pay Federal gift tax.
The down side to giving gifts to your children during your lifetime could be pretty severe. Giving too much could impact your ability to pay for your long-term care. Later in life when the desire to give more to children and grandchildren is often the greatest, the risk of consequences for over-gifting is also at its peak. Based on the most recent statistics on LongTermCare.gov, almost 70% of adults 65 or older will need some type of long-term care service in their remaining years, and about 35% will need care in nursing facilities. https://acl.gov/ltc/basic-needs/who-needs-care The majority of families in the middle class or lower rely upon Medicaid benefits to help cover the cost of skilled nursing care. If a person who needs skilled nursing care has made substantial gifts, it could cause substantial problems. Giving away too much could prevent a person from qualifying for Medicaid to help cover the cost of their care. The family may then be faced with difficult or even impossible choices. The large gift that was lovingly given could become a liability for both the giver and the receiver.
If you are thinking of making large gifts, you should consult with qualified experts to guide you to make the right choices for your family circumstances. Financial advisors, tax professionals, and elder law attorneys will all have valuable guidance, and may give different answers. The tax advice may be that you can give $16,000 without tax consequences, but the elder law advice might be that giving more than $500 could be a problem for long-term care reasons. You would be best advised to consult with experts in all of these areas. The peace of mind that comes from understanding how the whole picture comes together for your particular circumstances, and having a well thought out plan, could be a wonderful gift to yourself and your family.
Understanding the whole picture and making the perfect gift might start with a workshop. It’s not Santa’s workshop and there are no elves. But there is plenty of guidance on how gifts fit into the bigger picture of planning for the years ahead. Reserve your place by going to KeystoneElderLaw.com and clicking on the Workshops tab. The workshops happen weekly and you can attend one from the comfort of your home. It’s completely free, as our gift to you.
Kelly Appleyard, Attorney