Legal-Ease: Sometimes the law is simply unfair


By Lee R. Schroeder - Guest Columnist



Determining whether gifts of any size are legally problematic depends upon the context in which the gift is to be analyzed or considered.

The law on gifts in the context of taxes is actually pretty simple. Under current law, any person can give away up to $12 million during the person’s life or after the person’s life — through the person’s will, trust or post-death conveyance like survivorship.

Therefore, if a giver gives $100,000 to a receiver, neither the giver nor the receiver pay any tax whatsoever. In such instance, though, the giver must file form 709 with the IRS to inform the IRS about the gift. The IRS does not assess any taxes when that form 709 is received. Instead, the IRS notes the gift under the giver’s social security number. This allows the IRS to keep track, in this particular example, that the giver still can give away $11,900,000 without any tax being owed by that giver or any receiver.

Sometimes, people will question the conclusion explained in the last two paragraphs. People will say, “No, I heard that the tax-free gift amount was a small amount each year, something like $10,000 or $15,000.”

In reality, the “small amount each year” that people think is the limit before a gift is subject to tax is the size of annual gifts from any one person to any other one person within a year about which the IRS does not need to be told.

This year that small, annual amount is $16,000. Any person can give any other one person up to $16,000 in 2022 without having to file form 709, which means that the gift does not count toward the gift giver’s $12 Million lifetime gift limit before taxes are charged.

This freedom to gift so generously is exciting. However, the IRS’s disregard or acceptance of a gift does not mean that a gift will not be problematic if the gift giver someday applies for Medicaid to pay for long-term or nursing home care.

Medicaid does not care whether a gift was or is subject to tax. The Medicaid rules state that any gift given within the five years immediately preceding the date that the gift giver applies for Medicaid will be considered as being “available” to the giver, even though the giver has obviously already given the money away and no longer possesses the money.

Thus, for example, I can give $10,000 to my granddaughter for her wedding. The IRS does not want me to even send the IRS a form 709 regarding $10,000 gift, which is tax-free for me and tax-free for my granddaughter.

However, if I apply for Medicaid within the five years following the $10,000 gift to my granddaughter, I may encounter some challenges with my Medicaid eligibility due to that gift: a previously legal and tax-free gift.

All is not lost though. Generous people who may face future nursing home or Medicaid challenges can be very generous without either tax or Medicaid concerns if those generous people plan properly in advance.

https://www.limaohio.com/wp-content/uploads/sites/54/2022/05/web1_Schroeder-Lee-CMYK-3.jpg

By Lee R. Schroeder

Guest Columnist

Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at [email protected] or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.

Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at [email protected] or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.

Post navigation