Estate planning is an important part of financial management. However, as you create your plan, you may wonder, “Should you give away assets before you pass away?”
This decision can have significant implications for both your financial future and your heirs. Learn more about the pros and cons of giving away assets before you die here.
Pros of gifting assets
There are numerous benefits to this approach:
- Reduce estate taxes: One reason to consider gifting assets is to reduce the potential estate tax burden on your heirs. By transferring assets to your loved ones during your lifetime, you may decrease the overall value of your taxable estate.
- Asset protection: Gifting assets can also provide a degree of protection from creditors and legal claims. Assets placed in a properly structured trust may shield them from potential lawsuits or financial difficulties.
- Financial assistance: If you have family members in need of financial support, gifting assets can be a way to assist when it’s needed most, rather than waiting for the distribution of your estate.
It may please you to see your assets make a difference during your lifetime.
Cons of gifting assets
There are always trade-offs to every situation. The drawbacks include:
- Loss of control: One drawback of giving away assets is losing control over them. Once transferred, you may no longer have a say in how those assets are managed or distributed.
- Gift tax considerations: While gifting can reduce estate taxes, it may trigger gift taxes if the value of the assets exceeds the annual gift tax exclusion. Careful planning and consultation with a tax professional are essential to navigate this aspect.
- Medicaid eligibility: Gifting assets may impact Medicaid eligibility. Specific rules related to asset transfers may result in a penalty period.
The decision to give away assets before you pass away is complex and should be made with careful consideration of your financial goals, family dynamics and tax implications. Knowing your options, pros and cons can help you make an informed decision.
