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Gift Some of Your Success, But Do It Thoughtfully

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Gift some of your success

Say you’ve had a really good year financially and want to share it with loved ones for the holidays. How wonderful! Many people don’t realize that gifting can affect them long after the property has been given away or that they can have some say in how that gift is used by the recipient. So before you decide how to gift some of your success, here are ten things to think about:

1. Gifts Aren’t Secret, Part 1

The IRS cares. Gifts you make may be taxable. You are permitted by the IRS to give up to a certain amount during your lifetime and at death. Gifts for both are combined into one lifetime exemption amount. In the year you die, those who administer your estate will add up your countable gifts during lifetime and add them to the taxable property you hold at death and see if it’s over the limit. For 2019, the limit is $11.4 million. It’ll be back down to $5 million in 2026. So when you make gifts, consider whether it might count against you later on.

2. The $15,000 Limit

Some gifts don’t count. We’re sure you have heard that you can gift $15,000 per year without incurring tax. Or maybe you remember the prior limits of $10,000 or $12,000 or $14,000. Gifts this small are not counted when calculating your total in the paragraph above. The limit is adjusted for inflation each year and was increased to $15,000 in 2018 and remain the same for 2019. You can give $15,000 to an unlimited number of people per year – anyone at all, not just children or other relatives – and it won’t be counted toward your lifetime limit. If you go over $15,000 for any one person, you simply chip into your $11.4 million lifetime limit, and you are supposed to file a gift tax return to alert the IRS that you’ve used some of it. If the limit stays as high as $5 million, many of us don’t have to worry. But there’s no guarantee, political shifts could reduce it faster and/or further, so be mindful of where you stand, keep good records, and file a gift tax return if you go over.

3. Gifts Aren’t Secret, Part 2

Medicaid cares. If you may need long-term care in the next five years, be careful with gifts. To qualify for Medicaid (ALTCS in Arizona), gifts in the five years prior must be disclosed. A penalty will be assessed equal to the average cost of care in the county where you apply. That means no Medicaid until the penalty has run. If you otherwise qualify, you have few resources, and someone else has to pay. Note especially: The $15,000 gifts we talked about in Paragraph 2 above are counted against you — they are not excluded.

4. You Can Control How It’s Used

Consider a trust. If you want to retain some control over how a gift is used, a trust can contain as many limits as you want for as long as you want. The trust can stipulate that the beneficiary gets funds for only specific purposes or at the age of your choosing. Trusts are great strategies for minor beneficiaries, but also for adults who may be or are likely to become disabled; have issues with managing finances, spending, addiction; or who may not share your values.

5. Gifts to Minors

Minors can’t own assets themselves. An adult needs to control property for them until they reach adulthood. Small amounts get by, but larger sums could trigger the need for a conservatorship. Consider a trust (see Paragraph 4) or custodial account. For these accounts, an adult (the custodian) maintains control until the minor turns 18. You can be the custodian or name a parent or other trusted individual. The upside: unlike money in a 529 education account (see below), these accounts can be used for any purpose, not just education. The downsides: Assets cannot be transferred to another person, and the minor receives the funds at majority automatically. The accounts also lack the tax benefits of 529s and are considered the student’s for financial aid purposes, which can impact their eligibility.

6. If You Want to Gift for Education

Consider 529s. If your loved ones are or could attend an educational institution, trusts work well. But also consider contributing funds to a 529 account. Contributions qualify for the $15,000 exclusion, they grow tax-free, and money taken out for eligible expenses is also tax-free. If funds are not used for any reason, the beneficiary can be changed to a different family member. You can give to an existing account or set up new ones. Financial institutions are actively trying to make it easy for anyone to contribute. But only a reported 20% of parents ever invite others to contribute. So check with the student’s parents to see if there are existing accounts. In Arizona, you get a state income tax deduction. For contributions to a plan in any state, individuals can deduct up to $2,000 a year, and married couples filing jointly can deduct $4,000. Or, for a someone already in school, you could give the gift of paying tuition directly (also not counted against your lifetime gifting limit).

7. Gifts to Disabled People

Consider the impact on their benefits. If someone you love may be receiving needs-based benefits, be careful. Benefits that have income and asset limits could be lost if you give money or property. It depends on how much the person receives, what they receive (some property is exempt), and how they receive it (cash is not a good idea). Trusts are a good way to avoid the problem.

8. If You are Giving Non-Cash Gifts

Consider tax consequences. If you gift an asset, the recipient also receives your cost basis for tax purposes. Say you are considering gifting stock. Let’s also say that it has appreciated in your hands (you bought low and it’s now selling higher) and you expect it to appreciate further. If you gift it now, then when the recipient eventually sells the investment, the taxable gain will be based on your cost. If instead you hold the investment and gift it at your death, the recipient gets a basis adjustment to date of death, which often saves the recipient significant sums in capital gains tax.

9. If Your Estate Is Taxable

Consider what to gift. The flip side of Paragraph 8 is if your estate may be subject to estate tax. (It’s more than $11.4 million or more than you think the exemption will be when you die.) Removing an appreciating asset from your estate while it’s on the way up shifts that appreciation out of your estate. While that could mean tax for the recipient, it’s less estate tax, which minimizes tax overall. If you make gifts to trusts and want to keep some control, you need to be careful about what type of control you retain. It could have income tax consequences or result in inclusion in your estate – exactly what you are trying to avoid.

10. If You Want to Do Good–Efficiently

Consider a strategy for charities. Tax changes mean that people should consider thinking more strategically about gifting to charitable organizations. The Trump tax code made it harder to get an annual income tax deduction for charitable donations. To get some tax benefit, consider “bunching.” Make all or double up donations in some years, and itemize on your return. Then take the standard deduction in non-donating years. Or, consider one of many other vehicles, including charitable trusts and a donor advised fund (DAF). With trusts, you can contribute a larger amount and get the deduction but retain certain interests. With a DAF, you can contribute a larger sum, get a deduction, and then distribute to charities over time.

If you plan to gift some of your success this season, be proud. But also be thoughtful. Consider the recipients, your wishes, and the fact that you have more options than simply writing a check.

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Robert B. Fleming


Robert Fleming is a Fellow of both the American College of Trust and Estate Counsel and the National Academy of Elder Law Attorneys. He has been certified as a Specialist in Estate and Trust Law by the State Bar of Arizona‘s Board of Legal Specialization, and he is also a Certified Elder Law Attorney by the National Elder Law Foundation. Robert has a long history of involvement in local, state and national organizations. He is most proud of his instrumental involvement in the Special Needs Alliance, the premier national organization for lawyers dealing with special needs trusts and planning.

Robert has two adult children, two young grandchildren and a wife of over fifty years. He is devoted to all of them. He is also very fond of Rosalind Franklin (his office companion corgi), and his homebound cat Muninn. He just likes people, their pets and their stories.

Elizabeth N.R. Friman


Elizabeth Noble Rollings Friman is a principal and licensed fiduciary at Fleming & Curti, PLC. Elizabeth enjoys estate planning and helping families navigate trust and probate administrations. She is passionate about the fiduciary work that she performs as a trustee, personal representative, guardian, and conservator. Elizabeth works with CPAs, financial professionals, case managers, and medical providers to tailor solutions to complex family challenges. Elizabeth is often called upon to serve as a neutral party so that families can avoid protracted legal conflict. Elizabeth relies on the expertise of her team at Fleming & Curti, and as the Firm approaches its third decade, she is proud of the culture of care and consideration that the Firm embodies. Finding workable solutions to sensitive and complex family challenges is something that Elizabeth and the Fleming & Curti team do well.

Amy F. Matheson


Amy Farrell Matheson has worked as an attorney at Fleming & Curti since 2006. A member of the Southern Arizona Estate Planning Council, she is primarily responsible for estate planning and probate matters.

Amy graduated from Wellesley College with a double major in political science and English. She is an honors graduate of Suffolk University Law School and has been admitted to practice in Arizona, Massachusetts, New York, and the District of Columbia.

Prior to joining Fleming & Curti, Amy worked for American Public Television in Boston, and with the international trade group at White & Case, LLP, in Washington, D.C.

Amy’s husband, Tom, is an astronomer at NOIRLab and the Head of Time Domain Services, whose main project is ANTARES. Sadly, this does not involve actual time travel. Amy’s twin daughters are high school students; Finn, her Irish Red and White Setter, remains a puppy at heart.

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Matthew M. Mansour


Matthew is a law clerk who recently earned his law degree from the University of Arizona James E. Rogers College of Law. His undergraduate degree is in psychology from the University of California, Santa Barbara. Matthew has had a passion for advocacy in the Tucson community since his time as a law student representative in the Workers’ Rights Clinic. He also has worked in both the Pima County Attorney’s Office and the Pima County Public Defender’s Office. He enjoys playing basketball, caring for his cat, and listening to audiobooks narrated by the authors.