These tough economic times have placed many local residents in difficult financial situations. Many established families in our area may be considering ways to help out their less fortunate friends or family members who have faced recent financial bumps. However, there are often concerns about how tax issues will affect this generosity and whether or not certain giving will have consequences on inheritance plans. Whenever local families are considering large gifts it is helpful to consult with their New York estate planning attorney to understand how the law applies in their particular case.
Tax considerations are not the only thing that local families care about when considering helping out a friend or relative in need. However, there are various ways in which aid can be given, and it may be prudent to consider helping in one way instead of another based on tax issues. Unless the assistance is to one whom you are legally obligated to assist, such as a minor child, then the government will likely consider the gift in the same light that it would all others–including those intended to shrink an estate to protect it from other government taxes or benefit programs. These gifts will likely count against a lifetime gift exclusion amount, and therefore they may have consequences on a local family’s previous New York estate planning.
Forbes published a story this week explaining some options for families in this situation. For example, often the easiest way to avoid gift taxes is to give a value less than the annual federal exclusion amount of $13,000. Couples can combine this amount and may be able to give $26,000 to an adult child or other loved one in need without triggering tax consequences. Another alternative is to pay directly for the medical, dental, or tuition expenses of another. However, these payments must be made directly to the service providers, not to the individual whom the help is intended to benefit.
Various other types of assistance may also be provided without gift tax consequences. Rent-free living can be offered to one who is without housing so long as the fair market value of the rent comes within the annual exclusionary amount. A friend or family member could also be hired as an employee to provide work such as child care, bookkeeping, or other services. Yet it is important that pay for these services be reasonable and not more than what a stranger would be paid for the same work. Special rules may apply to all of these situations, and so consulting an estate planning attorney or other trusted professional before taking action is always a safe step.
It is also essential to consider the elder law consequences of such gifts. Should an application for Medicaid benefits be needed within five years of the date of the gift, the donor may be denied such benefits based on the amount of the gift. Consultation with an elder law attorney should be considered in this context as well. All of our attorneys are well versed in both elder law and estate planning.
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