Misconceptions About Gifting And Taxes In Estate Planning: Considerations For The Holidays

In this article, you will discover:

• When you have to pay taxes on the gifts you receive
• Whether gifts are tax-free for recipients
• Whether there are different tax implications for gifting cash versus assets

Do I Have To Pay Taxes On All Gifts I Give?

Giving up to $18,000 annually is not subject to gift tax. In addition, there is a unified deduction of $13.6 million for a lifetime. You can give tax-free gifts up to that amount, but that also includes the value of your estate. In other words, the value of the estate plus the gifts would be deductible up to $13.6 million. 

Is Gifting Always Tax-Free For The Recipient?

The one who gives the gift pays the tax. The giftee, the one who receives the gift, does not pay. If the giver fails to pay the gift tax, the IRS can come back to the recipient and force them to pay the tax or seize the gift itself and apply that tax.

Does Gifting Always Impact My Medicaid Eligibility?

When a person applies for Medicaid, there is a five-year look-back rule: Any sales of assets or any gifts made during the past five years may be recalled or may not count as lowering your assets. If the gift is made more than five years before applying for Medicaid, it does not create a problem.

Are There Specific Rules For Gifting To Non-Family Members?

There are no specific rules about giving to non-family members. You can give a gift to anyone up to $18,000 per year without a gift tax. Gifts between spouses have no limit; you can give unlimited gifts to your spouse with no gift tax. 

Are There Different Rules For Cash Vs. Asset Gifts?

There are no rules to differentiate the two. If you will be gifting, especially in a will, consider gifting the asset rather than selling the asset and giving cash. When you die, the value of the asset you give has a stepped-up basis, meaning the basis of the gift is not the value when you bought it but the value at the time of death. This valuation can significantly lower any taxes on that gift to the recipient.

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