Will I Have to Pay Any Penalties for Gifting Assets Before My Death?
Many people in New Jersey who start thinking about estate planning want to consider the assets they will leave to loved ones after their death. Whether they decide to name beneficiaries through bank account payable-on-death designations, through a will, through a trust, or via other means, the general idea is that the beneficiaries will inherit after the person’s death. Yet for a wide variety of reasons, a person working on an estate plan might realize that it makes sense to gift certain assets to loved ones prior to their death. There are many reasons to consider giving parts or all of an inheritance to your loved ones before your death, but it is also important to be certain that you will not subject yourself to monetary penalties in doing so.
Financial Benefits of Gifting Prior to Death
You may be concerned that making gifts prior to your death will result in certain fees or penalties. However, the opposite is actually true. In many situations, if you make gifts carefully and over time, you may actually reduce taxes in the longer run and allow your beneficiaries to receive more assets from you if you gift them prior to your death rather than after. Most significantly, if you make tax-free gifts up to the exempt amount every year, you may be able to reduce the total of your estate such that estate taxes will not be owed.
For 2025, the annual gift exclusion is $19,000. That means you can gift up to $19,000 without having to pay tax on that amount. The gift tax exclusion allows you to give up to $19,000 to as many individuals as you would like without the gift being taxable. If your estate would otherwise come close to or be over the estate tax exemption threshold, making annual gifts of $19,000 each to your loved ones to whom you plan to leave an inheritance can help them now and prevent estate tax later.
Financial Costs of Gifting Prior to Death
While you may be able to minimize estate taxes through gifting before your death, it is also important to consider Medicaid’s look-back period. If you will need to become eligible for Medicaid for long-term care, if you have made gifts in the five-year period before you need Medicaid coverage, you could be subject to a penalty.
When an older adult applies for Medicaid to cover long-term care, Medicaid will review any transfers of assets — which include gifts — during the look-back period, which is 60 months or five years. You may be eligible to make some transfers without incurring a penalty, however. Before you make any transfers, you should seek advice from an estate planning attorney.
Contact a New Jersey Estate Planning Lawyer for Help Today
If you have loved ones who could benefit from receiving all or part of their inheritance before your death, or if you are hoping to minimize estate taxes, making gifts to loved ones could be beneficial. However, it will be essential to seek advice from one of the experienced Summit estate planning attorneys at Dempsey, Dempsey & Sheehan to ensure that you are not putting yourself at risk of being penalized by Medicaid in the event you need long-term care. Contact our firm today for more information and assistance.
Source:
irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2025
