Gifting is an important part of our estate and elder law practice. Strategic gifting accelerates eligibility for VA benefits and Medicaid. Unfortunately, nothing seems to confuse folks more than the rules concerning gifting. In a nutshell, each of us may make gifts of at least $5.43 million estate and gift tax free! Here’s how the rules work:

  1. Each individual (Donor) may make annual gifts of up to $14,000 dollars (2015) per calendar year per beneficiary (Donee) without the imposition of federal gift tax. The right to make annual tax-free gifts is known as the annual exclusion. The annual gift tax exclusion is adjusted for inflation;
  2. If annual gifts to a single Donee exceed $14,000, the gift tax annual exclusion covers the first $14,000 and only the excess is taxable. However, rather than having to pay tax on the excess, taxable gifts reduce the Donor’s Applicable Exclusion Amount dollar for dollar. Each person has an Applicable Exclusion Amount sufficient to allow him or her to gift up to $5,430,000 (2015) tax-free during life. Taxable gifts made during the Donor’s lifetime reduce the Donor’s Applicable Exclusion Amount available at death. A Donor doesn’t actually pay tax until the value of gifts exceeds both the Donor’s annual exclusion and Applicable Exclusion Amount;
  3. Gifts are received income tax-free by the Donee no matter the amount. Even a $1 Billion gift is tax-free to the Donee!;
  4. Gifts to charities are unlimited;
  5. In addition to the $14,000 annual gift tax exclusion, there is an unlimited gift tax exclusion for direct payments of the Donee’s medical expenses or tuition. Room and board, supplies, books and other fees do not qualify. The Donor and Donee need not be related to qualify either for the unlimited medical or educational exclusions. To qualify, payment must be made directly to the school, doctor or hospital that provides the service. A payment made to the Donee will not qualify for the exclusion; and
  6. The VA (Aid and Attendance) and Medicaid (nursing home coverage) are NOT bound by rules 1 through 5 above. Technically, ALL gifts are count when determining eligibility for either government program.

The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.

Share This