Gifting assets to your grandchildren can do more than help your descendants get a good start in life; it can also reduce the size of your estate and the tax that will be due upon your death. Perhaps the simplest approach to gifting is to give the grandchild an outright gift. You may give each grandchild up to $14,000 a year (in 2015) without having to report the gifts. If you’re married, both you and your spouse can make such gifts. For example, a married couple with four grandchildren may give away up to $112,000 a year with no gift tax implications. In addition, the gifts will not count as taxable income to your grandchildren (although the earnings on the gifts if they are invested will be taxed).
However, any gifts can interfere with Medicaid eligibility. For example, in New York there is a 5 year look back for Nursing Home Medicaid. Therefore, if you gift money to a grandchild and end up in a nursing home within 5 years of the gift, you may be ineligible for Medicaid. If the grandchildren have already spent the money, this could cause to be ineligible for benefits. In addition, when money is gifted outright, there is no guarantee that the money will be used in the way you may have wished. There are a number of options to protect against misuse of the funds by grandchildren while protecting yourself: • You can pay for educational for your grandchildren. There’s no limit on these gifts, meaning that you can pay these expenses in addition to making annual $14,000 (in 2015) gifts. But you have to be sure to pay the school or medical provider directly. In addition, in some cases, these payments may also be exempt from the 5 year look back for nursing home. • You can transfer money into a living trust established to benefit a grandchild. This can help ensure that the money is used in accordance with your wishes. It can also ensure that the money is still “safe” in the event you go to a nursing home within 5 years of the gift. You should speak to an experienced attorney for questions concerning trusts and estate planning with grandchildren.
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