The IRS’ decision to increase the federal gift tax exclusion is welcome news to people who want to enjoy feeling generous and supportive by sharing their wealth with loved ones while living. The first gift tax increase in four years, resulting from inflation, still carries rules that impact estate planning. The annual gift tax exclusion allows a taxpayer to give or gift a certain amount of money or assets without resulting in the use of his or her lifetime gift and estate tax exemption. The federal gift tax exclusion has increased from $15,000 to $16,000 per year/per recipient. Likewise, married couples can give a combined $32,000 per year/per recipient tax-free.
Estate Related Tax Laws
Under current law, which took effect on Jan. 1, 2018, the New Jersey Estate Tax will no longer be imposed for individuals who die on or after that date. New Jersey is one of six states that imposes an inheritance tax on gifts at death, or within 3 years of death, to beneficiaries based upon the relationship of the decedent (person who has passed away) to the beneficiary (the person who received the gift). (Read more about New Jersey’s inheritance tax in a previous blog post.).
Meanwhile, the federal estate tax exemption increased to $12.06 million per individual, up from $11.7 million, which means your estate is not subject to the federal estate tax if the value of your estate is less than the exemption amount. There are exemptions and benefits to gift giving before death. Speaking with an experienced estate planning attorney is important to avoid unnecessary tax consequences and unforeseen results, such as the inability to qualify for Medicaid because of gifting.
Medicaid and Gifting
Gifting generally as a strategy to spend down assets to qualify for Medicaid is not uncommon but carries some risks. Importantly, Medicaid applications carry a five-year “look back” at where and how assets are spent regardless of whether the gift qualifies for any tax exclusion or exemption. If it is determined that assets were given away to qualify for Medicaid, the application will be subject to a penalty period whereby delaying the applicant’s ability to receive Medicaid. In How to Protect Your Assets from Medicaid, we discuss Medicaid’s financial requirements and strategies to maintain assets and qualify for the long-term care program.
Gifting assets is a powerful and strategic way to manage wealth and help others. An experienced estate planning attorney can help reduce potentially significant risks. Click here or call us at 856.782.8450 so we can help.