June 18, 2015
As estate planning attorneys, we regularly encounter people confusing IRS gift tax rules with the unrelated Long Term Care gift rules. That confusion is pervasive enough that we wanted to publish an article explaining gift tax rules and long term care planning.
The Common Gift Tax Rules Misconception
Perhaps as a result of the complexity of US tax law, many people believe that gifting more than $14,000 to any one person in one year will result in a gift tax.
Give Yourself Peace of Mind
A properly crafted estate plan can give you peace of mind, knowing your assets and family are well protected. Our estate planning lawyers will help you get there.
While a detailed discussion of the lifetime gift tax exemption is beyond the scope of this article, there is one important concept to discuss, so that you understand that most people can gift in excess of $14,000 per person per year without actually paying any gift tax.
The “lifetime gift tax exemption” is in excess of five million dollars (for 2015, it is $5,340,000). Most people can gift in excess of $14,000 per person per year without actually paying any tax to the IRS. While the IRS considers a gift in excess of $14,000 to one person in one year taxable, for most people such a gift only reduces the lifetime gift tax exemption and estate tax exemption of $5,340,000. No actual tax is paid.
Therefore, for clients with assets that are not near the lifetime gift tax exemption amount, there will be no tax paid on gifts in excess of $14,000 to a person in one year. The gift should be reported on Form 709, but no tax is owed by the giver or the receiver of the gift.
The Common Long Term Care Gift Misconception
Significant gifts made within five years of applying for Medical Assistance/Long Term Care is, in fact, a problem. Essentially, any significant gifts made within five years of applying for government help for Medical Assistance/Long Term Care may result in a “penalty period” where the government may refuse to help pay for Long Term Care costs.
The Annual Gift Tax Exclusion of $14,000 per person per year is an IRS tax rule – it is not a Medical Assistance/Long Term Care rule. Unfortunately, many people incorrectly believe that a gift of less than $14,000 to one person in one year will not be an issue when applying for government help for Medical Assistance/Long Term Care. That is not correct. There is no $14,000 legal exemption allowing for significant gifts within five years of applying for Medical Assistance/Long Term Care from the government.
Capital Gains Tax Concerns
Gifting appreciated assets can have capital gain “tax basis” ramifications for the gift recipient that need to be discussed with and considered by your estate planning attorney. At Wokwicz Law Office, we often undertake advanced estate planning actions in additional to Wills and Revocable Trust, such as Irrevocable Trusts if there are significant “tax basis” issues that need to be addressed.
Making an Appointment with our Estate Planning Attorneys
These gift tax rules and long term care considerations can be confusing for someone without a tax and long term care planning background. To discuss estate planning, nursing home planning, and gift tax rules with our experienced and knowledgable attorneys, please call us at 262-658-2181 for an appointment.