By Bernard A. Krooks, Certified Elder Law Attorney

Now that we are well into the new year, I’m hoping that one of your new year’s resolutions is to create an estate plan, if you don’t already have one.  If you do have one, then perhaps it is time to dust if off and see if it needs any updating. 

While the holiday gifting season may have just ended and you may be all “gifted out,” now may be a good time to consider making additional gifts to your family and loved ones.  Here are a couple of reasons why:  

The federal estate and gift tax exemption for 2024 is $13.61 million for each individual, up from $12.92 million in 2023.  Thus, in 2024, a married couple can give away during lifetime or on death (or a combination thereof) $27.22 million without incurring federal estate or gift tax.  New York, of course, has its own estate tax which kicks in for taxable estates over $6.94 million, up from $6.58 million in 2023.  However, New York does not have a gift tax, although any lifetime gifts made within 3 years of death are “clawed back” into the decedent’s New York taxable estate for purposes of calculating their New York state estate tax.  So, why is it important to consider making gifts now? Can’t I just wait until I pass away?  Several years ago, the federal estate tax exemption was increased significantly; however, these provisions are due to sunset (expire) at the end of 2025, unless Congress makes the change permanent (crystal ball, anyone?).  Most of us who spend time thinking about this stuff, think that the exemption will go down to approximately $7 million, about half of where it is now.  That’s why you might consider making a large gift now before the exemption goes back down.  The good news is that the IRS has clarified that those who make gifts now to take advantage of the increased gift tax exemption will not be adversely impacted if the exemption goes back down to its previously lower levels.  You will be able to keep the tax-free benefits of the gifts made prior to the sunset of the law.  Before making any gift, it is always a good idea to talk to your attorney and CPA to consider any applicable tax or other ramifications. 

If you are not such a high roller and are not in a position to make multi-million-dollar gifts, you may still wish to take advantage of annual exclusion gifts.  Each individual is permitted to give $18,000 in 2024, up from $17,000 in 2023, to as many people as they wish in any calendar year.  Thus, a married couple who has 3 children and 7 grandchildren, can give $36,000 ($18,000 each) to each of them in 2024, an aggregate of $360,000, without paying gift taxes or even having to file a gift tax return.  Moreover, gifts made for educational or medical purposes are not subject to the $18,000 limit so long as the gifts are made directly to the educational or medical provider. 

As we get older, we need to be increasingly concerned about the cost of long-term care.  In fact, two out of three Americans will need some form of long-term care during their lifetime and the care is very expensive, costing approximately $200,000 or more per year in our area.  Medicare does not cover these costs and, unless you have long-term care insurance, you will have to pay out-of-pocket for this expense or try to qualify for Medicaid.  Medicaid is a jointly funded federal-state program which does cover certain long-term care expenses, however, there are strict income and asset requirements which must be met before you are eligible for benefits.  If you want to make gifts to others in order to reduce your assets down to Medicaid allowable amounts, there generally is a five-year Medicaid look-back period and gifts made during that period will cause you to be ineligible for Medicaid for a certain period of time, depending upon the size of the gift and other factors.  So, the sooner you start making gifts, the sooner the five-year clock starts ticking.  Keep in mind when making gifts, however, that even though you might not have to pay a gift tax when transferring assets or property to others, you still should consider the income tax ramifications of such gifts.  A few years ago, a client mentioned to me that they had gifted their house to their children several years ago and it was done outside the Medicaid five-year look-back period.  The house was purchased by my client many years ago for $200,000.  At the time of the gift, the house was worth $1.2 million.  I was saddened to inform them that the income tax basis on gifts is a carryover basis so that when their kids sold the house, they would have to pay capital gains taxes on $1,000,000, the difference between what they sold it for and the tax basis ($1.2 million minus $200,000).  These taxes could have been avoided with proper planning.  Needless to say, a very hard lesson for the client to learn. 

As you can see, gifting can be an excellent idea for some, but you must proceed carefully.

Bernard A. Krooks, Esq., is a founding partner of Littman Krooks LLP. He was named 2021 “Lawyer of the Year” by Best Lawyers in America® for excellence in Elder Law and has been honored as one of the “Best Lawyers” in America since 2008. He was elected to the Estate Planning Hall of Fame by the National Association of Estate Planners & Councils (NAEPC). Krooks is past Chair of the Elder Law Committee of the American College of Trust and Estate Counsel (ACTEC). Mr. Krooks may be reached at (914-684-2100) or by visiting the firm’s website at www.littmankrooks.com.