Congress has afforded all of us an unprecedented—and probably never to be seen again—opportunity to make significant gifts to our children (and grandchildren), thereby reducing the estate taxes which could hit our families when we die. For the remainder of 2012, each of us is permitted to make gifts totaling up to $5.0 million to our offspring without any federal gift taxes. That amount will fall to $1.0 million for each of us on January 1, 2013. On paper, it appears that making significant gifts this year makes sense, if we are concerned that our estates will exceed $1.0 million in 2013 and thereafter. However, does such a strategy make sense for you and your family?
First, it is important to remember that you must keep enough assets in your name so that you can provide for yourself as you age. In doing that, remember that a change in your health could dramatically increase your cost of living. Relying on children to take care of you if you run out of money carries with it great risk. Some children can barely afford their own living expenses; others simply don’t care about their parents.
Secondly, any gift can also affect your ability to have your nursing home costs paid by the state in which you live if you run out of money. Ohio has a 5-year “look-back”rule, which provides that you are not eligible for Medicaid (the State funds which pay the nursing home costs for those who run out of money) if you make a gift within five years of applying for Medicaid. The period of your ineligibility depends upon the size of the gift. So, while making gifts to reduce your estate may seem like the right thing to do, it could have bad consequences for you if you end up in a nursing home.
The conclusion: it is really important to get competent advice from an Estate Planning and Elderlaw attorney before beginning any type of gifting strategy.
Jack N. Alpern, Esq.
The Alpern Law Firm