Gifting assets sounds like a great healthcare cost planning tactic. After all, if at some future point you need help paying for assisted living, nursing home care, or pharmaceuticals, having fewer assets might help you qualify for benefits from Medicaid. And the smaller your estate, the less likely estate tax is to present a challenge for your heirs, you figure.
Here at Geyer Law, we appreciate the fact that you’re thinking ahead and trying to plan for future healthcare costs. As elder law attorneys, though, we know there’s one problem with choosing a direct give-away tactic for dealing with potential healthcare needs, and that problem is potentially huge. It boils down to this: outright gifting means giving away all control over the property.
The moment the transaction is complete, recipients of your generosity will have sole control. They’ll be able to sell the property, use it as collateral for a loan, or use the income or the proceeds for their own needs. If what you’ve gifted is a residence, your “donees” may decide not to allow you to live there, or may not give you any of the income from the property, no matter how much you might need financial backup at that time.
Even assuming you choose only the most loyal and trustworthy family members or friends to whom to transfer property, individuals who truly have your best interests at heart, there’s no guarantee that they will be able to keep their promises years into the future. What if he is in an auto accident and doesn’t have enough liability insurance to cover all the damage costs? What if she dies and control of what used to be your property passes to other people through her estate? What if your recipients – or their children – were to encounter large unexpected medical costs of their own?
You thought gifting property might reduce taxes, but often the precise opposite can result. First of all, your cost basis transfers to the recipient of your gift (which might well be property you purchased years ago for a small amount of money), so, if the property is sold by the donee, the capital gains tax might be substantial, leaving fewer resources that might be devoted to your needs. Perhaps most important, gifts that exceed $1,200 during a calendar year can result in you later being ineligible to receive Medicaid benefits.
Property-gifting tactics, we think, ought to come with a big warning label reading “Handle with care – gifting of property involves a complex set of tax laws and healthcare regulations!” That’s why at the Geyer elder law firm, we’re dedicated to offering compassionate guidance. We know that, without some well-thought-out and professionally guided Medicaid planning, too often less (downsizing assets through giving) ends up causing more (problems)!