PLANNING AHEAD: Gifting considerations for now and later [Column]

If you feel you are comfortably situated — a condition you need to examine carefully — you might, especially in later years take a look at gifting either as a way of moving assets out of your estate to charities or to pass some of your wealth on to your children before you die. As with any decision there can be positives and negatives. Here are some ideas to help you decide.

Charitable gifting during lifetime can be a satisfying way to benefit organizations and causes you support and see them in action. Family members may have specific needs.

• Who or what organizations do you want to benefit by the gift?   You might want to consider gifting to your church to advance its programs or to an institution of learning or to benefit research to find cures for disease, for hospitals, cultural institutions, or to assist those in need for medical or other reasons. Causes you support may benefit by action now. If you want a tax deduction you can check first to see whether your organization qualifies as a 501(c) (3) organization.

• 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 receive 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” 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?  Often individuals and couples mistakenly believe the government taxes gifting over $16,000 per year (the new annual exclusionary amount for 2022). This relates to whether a gift tax return should be filed by the following April 15. It does not mean taxes are owed. Even if you exceed $16,000 gift per person ($32,000 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 2022 is $12.06 million per person.

• Some taxes to consider are capital gains taxes and Pennsylvania inheritance taxes. You can gift to a charity and take advantage of their tax exempt status to save taxes and give you a lifetime income if structured in certain ways.

Regarding individuals, if you give cash, there are no capital gains consequences. If you give highly appreciated assets, the recipients, if they are not charities, are generally better off inheriting rather than being gifted to during your lifetime. Inherited assets receive a “step  up” in basis at death avoiding capital gains taxes that would be payable if property, such as real estate or stock that has increased in value is gifted during life.

For Pennsylvania inheritance taxes, a gift only takes the property out of your estate if you live for another year.

There is no one size fits all when it comes to giving. Get legal and professional help if you need it.

Janet Colliton, Colliton Elder Law Associates, PC, is a Certified Elder Law Attorney and limits her practice to elder law, special needs, estate planning and administration and guardianships and is located at 790 East Market St., Suite 250, West Chester, 610-436-6674, [email protected]  She is also, with Jeffrey Jones, CSA, co-founder of Life Transition Services LLC, a service for families with long term care needs.

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