A Time of Giving

Attorney Ruth Tolf Ansell

December 2013


Every year at this time, many of our clients are thinking of making gifts to their family and friends. Most of these gifts are motivated by love and affection. Some, however, are also motivated by estate tax or Medicaid planning.

For gift tax purposes, you can give any person you want an 'œannual exclusion gift.' This amount is currently limited to $14,000 for each person who is lucky enough to receive this gift. You can make this gift to any number of people. They do not need to be related to you. This means that a married couple can give up to $28,000 to any number of people, every year, without gift tax consequence. If you give more than this amount, however, a gift tax return is due to be filed on or before April 15th of the following year.

Gifts greater than the annual exclusion use a portion of the gift and estate tax exemption amount, but no tax is payable unless your aggregate, taxable gifts exceed $5,340,000 in 2013. Gifts in excess of this amount will be subject to gift tax at 40%.

Some gifts are not limited to the annual exclusion amount. You can give an unlimited amount to an American spouse or to charitable organizations. The amount which you can give to a non-American spouse, however, is limited to $143,000 in 2013 or $145,000 in 2014.

Annual exclusion gifts have been very useful in reducing the size of an estate which was likely to be subject to estate taxes at the death of the donor. As the estate tax exemption has increased, however, their usefulness as an estate tax planning tool has become more limited. (I am sure that they are still very useful to the people who receive them!) The estate tax exemption is $5,000,000, increased by the cost of living to $5,340,000 in 2014. Accordingly, if your estate is significantly less than this amount, you no longer need to make annual exclusion gifts for estate tax planning.

For people with estates greater than the exemption, however, annual exclusion gifts can still be used to reduce the value of your estate over time. It is most helpful to make these gifts early in the new year, however, instead of December of the prior year because donees must deposit their checks before the end of the year and, unfortunately, not all of our clients (or their donees) will survive until next December.

Gifts in anticipation of nursing home expenses are an entirely different plan. These gifts are generally not motivated by tax planning. Medicaid looks at all gifts made within 5 years of needing medical assistance and will disqualify the donor for a period of time measured by the amount of the gift, after you have spent all of your available resources. New rules allow nursing homes to pursue the donees of these gifts, which impoverish the donor and permit him or her to receive Medicaid assistance. However, if you have more than enough assets and income to pay for any potential care for the next 5 years, you might consider a gift of the 'œexcess' assets to your family. However, you should not retain any interest in the gifted property or cash.

If you would like to discuss any of these issues, please schedule an appointment in the new year. In the meantime, we wish you all a very, Merry Christmas.