Ethan R. Okura and Carroll D. Dortch


From the American tradition of a big Thanksgiving feast to the various religious celebrations at this time of year, gifts and sharing with others are what make this holiday season so special. Unfortunately, many people are not aware that there can be unintended negative consequences for both the giver and the recipient of a gift when proper planning has not been done. There are three main things to think about when making gifts:

  • Taxes incurred by the giver and/or the recipient.
  • Nursing home Medicaid, Supplemental Security Income and similar resource-based government benefit program eligibility.
  • How the gift will affect the lifestyle of the giver and the recipient


Gift, Estate and Capital Gains Tax. When the gift tax was re-enacted in 1932, it wasn’t intended to raise a great deal of revenue for the government, but rather to protect against citizens transferring assets to others in a lower income tax bracket or giving away assets to avoid paying estate tax.

In 1932, you could give $5,000 to any number of people each year without owing any gift tax. This was called the annual exclusion. When adjusted for inflation to 2017 dollars, it would be equivalent to being able to give $82,700 to each person without incurring a gift tax. However, the annual exclusion was only increased to $10,000 in 1981and began to be adjusted for inflation in 1997. The annual exclusion amount is currently $14,000 to any number of people each year.

In addition, you may give away $5,490,000 in one lump sum or in many small gifts as an exemption to the gift tax during your life. This is in addition to the annual gift tax exclusion mentioned above. Any portion of the $5,490,000 that you do not use as an exemption on the gift tax during your lifetime will be applied as an exemption to any estate tax you may owe when you die. Therefore, if you don’t expect to ever own or give away a total of $5 million in assets by the time you pass away, you will never be able to use up all of your gift and estate tax exemption — even if you give away everything you own all at once. This is why, for most people, limiting themselves to gifts of $14,000 per year or less for the purposes of avoiding a gift tax is entirely unnecessary and possibly detrimental.

Capital gains tax is what you pay when you sell something (such as your home or stocks or anything else) for more than the price you paid for it. There can be some capital gains tax benefits to owning assets at the time of your death rather than giving them all away during your life. However, with proper legal advice, you can often retain those same benefits and give away assets during your lifetime. This is a much more complicated subject that deserves a column all its own in the future.


Nursing Home Medicaid and Supplemental Security Income. Even though you can give away $14,000 each year as an annual exclusion and up to $5,490,000 in addition to the annual exclusions without owing any gift tax, there can be other consequences for giving away assets. The most common problem is not being able to qualify for SSI benefits and long-term care Medicaid. Both are government programs based on need and requiring applicants to have limited assets. If you give away or sell assets for less than fair market value, you will not be eligible for SSI for up to 36 months after making the gift. For long-term care Medicaid, you will be ineligible for one month for every $8,500 worth of assets given away in the five years prior to applying for Medicaid. In other words, if you gave away assets worth a total of $85,000 in the five years before applying for Medicaid, you would have to wait 10 months after applying before you would be eligible to apply again.


Non-financial considerations. The final factor to consider when giving away assets is how it will affect your lifestyle and that of the gift’s recipient. If you might need the assets to maintain your own standard of living, you should be careful about giving them away. On the other side of the equation, who will be receiving the gift? If you are planning on giving hundreds of thousands of dollars to a 21-year-old young adult in college, you might prefer that he or she not spend it all on a new Ferrari or Lamborghini. Once you give it away, it is no longer yours and your ability to control what the recipient does with the asset will be limited.

However, if you give assets to an irrevocable trust for the benefit of your child (or anyone else), you can dictate the conditions under which your child can use the assets as the beneficiary of the trust. A properly drafted trust can also allow you to take advantage of the capital gains tax benefits of owning assets at death even if you give them away to the trust during your lifetime.

In conclusion, enjoy the spirit of the season, which may inspire you to give to others and help those less fortunate. However, in order to fully enjoy the blessings of giving without any negative consequences, make sure you get proper advice before making large gifts of assets.




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Ethan R. Okura received his doctor of jurisprudence degree from Columbia University. Carroll (Cary) D. Dortch received his doctor of jurisprudence degree from the University of New Hampshire School of Law.

The lawyers at Okura & Associates focus their practice on estate planning to protect assets from nursing home costs, probate, estate taxes and creditors.

This column is for general information only. The facts of your case may change the advice given. Do not rely on the information in this column without consulting an estate planning specialist.

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