Hey there, Legal Tea Listeners –This is your host, Jenny Rozelle! Today’s episode of Legal Tea is the “cautionary tales” topic. And on these “cautionary tales” episodes of Legal Tea, we normally talk about real-life cases with real-life clients that are things me or my office have worked on -or they are things that I think are generally good things to be aware of, so you don’t turn into a cautionary tale on my Legal Tea podcast one day! Well, I hope this episode is an educational one – it’s about gifting while you’re alive – the pros, the cons, the good-too-knows, the things to know, etc. This was actually a request by a Legal Tea Listener – but the more I thought about, the more I was like, “Yeah – gifting is definitely something people do, sometimes mess up on, etc.” so it seemed like a good “cautionary tales” topic.
In my world, there are generally three scenarios where I see people do gifting … and actually, before I go there, I think I should better define what I mean by gifting. What I mean by gifting is that some will transfer assets or transfer funds to a child, a loved one, a someone – so, maybe it’s writing that someone a check for $10,000, maybe that’s transferring farmland, but regardless, it’s literally taking an asset or money out of your name and gifting them to someone. Okay, I just wanted to clarify that. So now back to the three scenarios where I see people do gifting:
1. High net worth folks – There are quite a few tax strategies for high net worth folks that involve gifting out of their names purely for estate and inheritance tax planning.
2. People that gift to “protect assets from the nursing home” – Now I say that piece, protect assets from the nursing home, in air quotes that you definitely cannot see. But people gift assets for this reason often – and we’ll talk about the pros and cons about doing that.
3. Just being generous – People also gift for really no particular reason. Rather, they do it just to help their kiddos out, or maybe so they can see them enjoy it while they are living. Not for any particular reason, if that makes sense. So yes, this is one reason, but we’re really not going to talk about this one too much. Rather, I want to focus on the first two I just talked about for this episode.
Let’s first talk about high net worth folks gifting – typically, the main goal and the main motivation behind their gifting is for estate tax planning purposes. Estate tax planning through super strategic gifting is an important tool for high net worth individuals and families looking to efficiently transfer wealth to future generations while minimizing their estate tax burden when they pass away. The federal estate tax exemption as of 2025 is $13.99 million per individual (or $27.98 million for married couples), with estates exceeding these thresholds facing a 40% tax rate on the excess amount. (Another quick note: There are some states that impose their own estate taxes with lower exemption thresholds.) So yeah, with those kinds of amounts – that’s why we are talking about high net worth. A whole lot of people don’t fall into this camp, but since the episode is on gifting, I’d be remiss if I didn’t mention and briefly discuss this being a reason for gifting.
So … To manage these potential tax liabilities, high net worth folks often do very intentional and strategic gifting. The annual gift tax exclusion allows individuals to give up to $19,000 (as of 2025) per recipient per year without triggering gift tax consequences or using any of their lifetime estate tax exemption. For married couples, this amount doubles to $38,000 through gift splitting. This means a couple with three children could transfer $114,000 annually to their children without any tax implications. These annual exclusion gifts can also be made to grandchildren or other beneficiaries, multiplying the wealth transfer potential. So THIS is why they gift – because they are effectively getting money and assets strategically out of their name in a way that avoids gift tax implications and future estate tax implications.
One last quick note – one frequently-used strategy is gifting appreciating assets like stocks, real estate interests, or business shares. This strategy is particularly powerful because it removes not only the current value of the asset from the estate but also all future appreciation. For example, gifting shares of a private business that's expected to grow significantly can transfer substantial future value out of the taxable estate. Additionally, certain assets can be gifted at discounted values through specialized vehicles like Family Limited Partnerships (FLPs) or intentionally defective grantor trusts (IDGTs), which can provide valuation discounts for lack of marketability or minority interests, effectively allowing the transfer of more economic value within the annual and lifetime exemption limits.
Now let’s shift to talk about gifting assets to “protect assets from the nursing home” – People also sometimes attempt to protect their assets from nursing home costs by gifting them to their children or other family members years before they anticipate needing long-term care. The thinking behind this strategy is that by removing assets from their name, they can qualify for Medicaid coverage of their nursing home care while preserving an inheritance for their children. This often involves transferring ownership of their home, investment accounts, or other assets.
However, hear me loud and very clear, my friends – this approach is usually problematic and can backfire badly. Medicaid has a "lookback" period, meaning they review all asset transfers made within the lookback period of applying for benefits. Any gifts or transfers made during this period can result in a penalty period during which Medicaid won't cover nursing home costs, with the length of the penalty based on the value of the transferred assets. Additionally, once assets are gifted, the person loses all control over them. If their child goes through a divorce, faces bankruptcy, or simply mismanages the assets, the parent has no recourse. There's also no guarantee that the child will use the assets to support the parent's care if needed.
Now another HUGE thing these folks forget is that gifting assets can trigger unnecessary capital gains tax liability for the children, as they don't receive the step-up in basis at death that they would through inheritance. So, between the risk of the gift being subject to your child’s divorce, bankruptcy, etc. AND potential tax issues, there are certainly more prudent strategies to accomplish this – that may include exploring long-term care insurance while still healthy and eligible, setting up appropriate trusts with professional guidance, or maintaining control of assets while doing other Medicaid-compliant planning. The key is to work with qualified elder law attorneys who can suggest legitimate strategies that don't put the person's future care and security at risk.
One of the biggest things about gifting that I think people forget or miss is that … a gift is a gift. You can’t take it back. You’ve passed the baton. In fact, I’ve totally made up a word to describe this – it’s “untakeabackable.” Don’t come at me. I KNOW it’s not a word, but the reason I call it that is because … The "untakeabackable" nature of gifting is one of its most serious and often overlooked risks. Once you give something away, you've permanently surrendered control and ownership. There is no legal right to demand it back if circumstances change. And I have actually seen where something has been gifted and the recipient of the gift refuses to give it back after the original owner realized the risks, concerns, etc. So yeah, the “final aspect” sometimes makes gifting an especially risky strategy for older adults who might need those assets for their own care later.
Think of it this way: when you gift your house to your children, you're not just giving away a building - you're giving away your financial security and autonomy. If you later need that home equity to pay for care, fund a reverse mortgage, or even just decide to sell and move somewhere else, you no longer have that option. Your children are under no legal obligation to help you or return the property, even if you face a health crisis or financial emergency. Even if they want to give it back, doing so could trigger new tax consequences or Medicaid penalties.
I may be biased, but I particularly love the term "untakeabackable" because it captures this finality (FIE-nality) in a memorable and funny way that resonates with people. It's a stark reminder that gifting is NOT like lending money to your kids or letting them live in your house - it's a permanent transfer that can't be undone, unless they are willing to help you undo it. This is why it's crucial for people to maintain control of their assets as they age, keeping their options open rather than making irrevocable decisions that could leave them vulnerable later in life.
As we start to wrap this up – you know, gifting assets - whether it is for estate tax planning purposes or attempting to protect assets from nursing home costs - is a complex strategy with sometimes permanent consequences. While gifting can be a powerful tool when used correctly, intentionally, and strategically, it can also backfire badly if not done well. The rules around gifting are complex and interweave with tax law, Medicaid laws, and estate planning considerations in ways that seriously aren't always super obvious. This is why it's crucial to work with qualified advisors, like financial, tax, and legal professionals, BEFORE implementing any gifting strategy – because they can help evaluate your specific situation, identify potential pitfalls, and suggest more appropriate alternatives that do not put your future security at risk.
Alrighty, let’s shift to a sneak peak of next week, which we’re circling back to the “current trends” topic where we talk about things that are going on currently that impact my estate and elder law world – or maybe, things that I have stumbled upon on the news or social media that is relevant to this podcast. Well for next week, we are going to talk about OJ Simpson – and I know, it’s not really current, but there’s a super popular documentary on Netflix about him, which led me to start wondering how his court cases impacted his estate (or not). In the documentary, at one point, the family of the Goldman family mentioned him hiding and protecting his assets … So next week, we’re going to dive into all that and see what I can find. So tune in for that next week, Legal Tea Listeners, so until then, be well and talk soon!
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