By Mia Poliquin Pross, Esq.
People often hear about the federal annual gift tax exclusion that allows one to make gifts up to a certain amount per year, per person, without having to file a gift tax return. The gift tax exclusion amount for 2024 is $18,000, and it changes every year. What that means is that you can give up to that exclusion amount to a child or another person, and you don’t have to file a special form with your income tax return that year. Even if you exceed that amount and have to file the form, there’s no actual taxes due until you exceed the lifetime exemption amount for gift and estate taxes (which is currently set at over 13 million dollars). But just because there are no gift taxes due, that does not mean that your gift is entirely risk free.
Elderly people, hearing about the gift tax exclusion and seeing that the end is approaching, often think it will be a good idea to start “unloading” some assets before death to make it easier on family when they pass. That’s generally not a problem if you’re talking about great-grandma’s brooch, a music box collection, or furniture that’s gathering dust in the attic. But large monetary gifts and gifts of real estate can be problematic, even if there are no taxes due. People also often don’t realize that jointly titling property with someone else is also considered a gift and that gives the other person complete ownership of the property. You need to understand the consequences before making these decisions.
The first problem is that unless the elderly person has very good long term care insurance or has significant assets to privately pay for nursing home care out of pocket (which is roughly $10,000 a month), making a major gift within 5-years of needing assistance to pay for long term care, will make that person ineligible for help through the MaineCare program for a period of time. This can be catastrophic for an elderly person who needs care but who has inadvertently made themselves ineligible for MaineCare because they gave away assets.
Another risk to fully consider before adding someone as a joint owner on your real estate or on your financial accounts is that they become an equal owner of your property. If your joint owner should incur any liabilities, your property could be vulnerable and reached by their creditors. If an elderly person needs help with their banking, they should instead consider naming a trusted loved one as their agent under a durable financial power of attorney prepared by a lawyer. That will allow the trusted person to help with finances, without the elderly person being exposed to unintended consequences of a jointly titled account.
Finally, to undo a gift transaction, you’d need to entirely rely on the gift recipient to willingly help you undo the gift once you realize there’s a problem. Sometimes relationships deteriorate, or the person uses the money and cannot give it back when you need it, or that person dies, and your property gets tied up in their estate. These situations can get messy and there also may be other tax issues that arise related to transfers of property that need to be fully considered.
There are many myths out there, and more than a few clients have come to our office struggling with the consequences of a gift they thought was relatively risk-free. If the elderly and their loved ones are armed with the knowledge about the risks associated with jointly titling property and gifting assets, many unintended negative consequences can be avoided, and assets can pass smoothly to the next generation. Consulting with a lawyer who works in long term care planning before making gifts to loved ones will be worth the relatively small cost, instead of potentially making a costly mistake.
Originally published in Sun Journal Estate and Funeral Planning Guide, April 25, 2024