Estate planning is often viewed as something to worry about later; after all, if you can give money and assets to your loved ones while you’re alive, why bother with complex inheritance plans? This perfectly reasonable question has led many to consider giving while living as an alternative to traditional estate planning.
While there can be significant emotional and practical benefits to witnessing your generosity in action, there are also important tax implications, family dynamics, and other complications to consider before gifting inheritance before death. In this blog, we outline the complexities involved in this decision and aim to provide clarity on whether gifting assets is the right choice for you.
Benefits of Gifting Assets Now
Sharing your inheritance during your life can be a good option for the following reasons:
- Reducing Estate Taxes: One of the primary reasons individuals choose to gift assets during their lifetime is to reduce the size of their taxable estate. By transferring assets to beneficiaries before death, you can potentially minimize estate taxes that would otherwise be due upon your passing.
- Asset Protection: Gifting assets can also serve as a strategy for protecting those assets from potential creditors or legal claims. Assets held in trust or gifted to beneficiaries may be shielded from certain types of liabilities that could arise in the future.
- Immediate Impact: Unlike assets transferred through a will, gifts made during your lifetime have an immediate impact. This can provide financial support or assistance to loved ones when they need it most, rather than waiting until after your passing.
Drawbacks to Gifting Inheritance Before Death
Consider the following cons of giving out money or assets outside of the estate planning and probate process:
- Tax Implications: While gifting can reduce estate taxes, it’s crucial to understand the gift tax rules and exemptions. In California, gifts above a certain value may be subject to federal gift tax, although annual exclusions and lifetime exemptions can mitigate these taxes.
- Loss of Control: Once you gift an asset, you generally relinquish control over it. Consider whether you are comfortable with potentially losing control over the gifted assets and how this aligns with your overall estate planning goals.
- Impact on Medicaid Eligibility: If you anticipate needing Medicaid assistance for long-term care in the future, gifting assets could impact your eligibility. Medicaid has strict rules regarding the transfer of assets, and gifting large sums may result in a penalty period during which you are ineligible for benefits.
Talk with Us Before Gifting Money or Assets
Deciding whether to gift assets during your lifetime is a significant aspect of estate planning that requires careful consideration of financial, legal, and personal factors. By consulting with knowledgeable professionals like those at OC Trial Group, you can make informed decisions that align with your goals and benefit your loved ones. Whether you are considering gifting assets, creating a comprehensive estate plan, or have questions about the implications of different strategies, our experienced team is here to assist you.