Elder LawEstate PlanningInheritanceTrustsWills and Probate

ASK TOM: To Give or Not to Give Big Gifts?

A Time to Give:

If one spouse has a catastrophic illness or is trending in that direction (say due to declining ability to keep track of things), it is a time to consider large gifts.  The gifts are expedient if there is no resource with which to pay nursing home care as the sick spouse becomes worse.  The well spouse can in that situation become impoverished.  Governmental benefits for nursing home care for patients in severe need require the property of both spouses to be used for the help of the ill spouse.

A solution is to immediately make large gifts to reduce the estate of both spouses to only that which will not be taken from the well spouse to pay for the sick spouse’s care.  It is sometimes necessary to consult a lawyer to get this process just right.

The large gifts must generally occur five years or more before the sick spouse moves to institutional care. Otherwise the gift property is pulled back to pay for the sick spouse.  This means the well spouse may be impoverished.  So if one spouse becomes seriously ill or shows early signs of dementia, it is time to consider big gifts out of the couple’s estate.

When to Hold Back on Gift Giving:

Late in life is traditionally the time people begin giving property away to their loved ones.  The one who is thinking of making a gift may want to because the ranch or some other property is becoming more and more burdensome for them to manage, or one of the children is using the store building or the shop to make a living.  It is only natural to want to make sure the children have the means to make a good living.

Here is why some big gifts are better delayed until after death: 

The tax law since the 2017 changes generally makes it better to hold onto the property until death.  We are no longer so concerned about estate taxes.  The exemptions are high enough now for most people to avoid them.  It is the income tax that is best avoided by the simple step of holding onto the property.  Normally to compute the gain on the sale of property we subtract the cost of the property from the sales price.  The difference is the taxable profit.  But here is the sweet thing. When we die, the cost of the property is traded for the value at the date of death.  If the property value has highly increased, death of the owner saves from tax all of that historic appreciation that occurred before the owner’s death.

The fact is we can’t escape taxes or death, but thanks to congress, here is one instance where death escapes taxes.  It’s so sweet.

Here is another big gift for the younger generation to consider:

In the past the older generation may have already made big gifts to the younger generations of the family.  This was generally done to save estate taxes.  Now with estate taxes no longer the threat, and if the older generation is still living, consider having the younger generation give the property back to the older folks.  Then when the older generation dies, they save the income tax on the profit in the property.

Many times these gifts were made in the form of partnership or limited liability company shares.  If so, it is easy to just give the shares back.

The bottom line is you can avoid taxes by dying.

JensenBayles, LLP provides a broad spectrum of legal services. Thomas J. Bayles has been actively providing advice in the areas of trusts, wills, probate and tax planning in the St. George market for over 18 years. Please visit our web site www.jensenbayles.com or call 435-674-9718 and ask for Thomas J. Bayles. The information in this article is for educational purposes only and is not intended to be construed as legal advice.