Cautionary Tales - To Gift or Not to Gift - Episode 249

Hey there, Legal Tea Listeners –This is your host, Jenny Rozelle! Today’s episode of Legal Tea is the “cautionary tales” topic. And on these “cautionary tales” episodes of Legal Tea, we normally talk about real-life cases with real-life clients that are things me or my office have worked on -or they are things that I think are generally good things to be aware of, that way you do not turn into a cautionary tale on this podcast one day! Alright, today we’re diving into the idea of gifting during your lifetime - the upsides, the downsides, and the “hey, you’ll want to know this before you do anything” kind of details. This topic actually came from a Legal Tea Listener (which I love), but the more I sat with it, the more I thought, “Yeah… this is one of those areas where people have good intentions… and sometimes get themselves into trouble.” So it felt like the perfect setup for a little bit of a cautionary tale episode.

In my world, I tend to see gifting show up in about three main scenarios. But before I get into those, let me take a second to define what I mean by “gifting,” because that term gets used pretty loosely. When I’m talking about gifting, I mean actually transferring money or assets out of your name and into someone else’s. That could be as simple as writing a $10,000 check to a child, or as significant as transferring farmland or an investment account. Either way, the key point is this: it is no longer yours. It is fully in their name with no strings attached. I just want to make sure we are all on the same page there before we go any further.

So with that in mind, here are the three situations where I most often see people make gifts. First, high net worth individual - there are some very legitimate and strategic tax planning reasons for gifting in that world. Second, people who are trying to “protect assets from the nursing home” - and yes, I am absolutely putting that in air quotes that you can’t see right now. That’s a big one, and we’re going to spend some real time unpacking that. And third, just plain generosity. Sometimes people gift simply because they want to help their kids out or see them enjoy the money while they’re still here. There’s not necessarily a strategy behind it—it’s just very generous and what they want to do. And while that’s great, it’s not really where I want to spend our time today. For this episode, I want to focus mainly on those first two scenarios.

Let’s start with high net worth gifting. In those situations, the primary motivation is usually estate tax planning. Gifting can be a really powerful way to transfer wealth to the next generation while minimizing the estate tax burden down the road. As of now in the current year, 2026, the federal estate tax exemption is $15 million per individual, or $30 million for a married couple. Anything above those thresholds can be taxed at rates up to 40%. And just as a quick side note, some states have their own estate taxes with even lower exemption amounts and I want to make sure you understand that; that, some states have far less as a threshold due to a STATE estate tax, which a lot of states do not have state estate tax, but some still do. Anyway, when you hear those numbers that I just mentioned (the $15 million per individual, or $30 million for a married couple), that is why I am talking about high net worth here – that is, most people do not fall into this category, but it is still an important piece of the overall gifting conversation.

To manage those potential tax liabilities, high net worth individuals often use very intentional gifting strategies. One of the simplest tools is the annual gift tax exclusion, which allows individuals to give up to $19,000 per recipient per year as of 2026 without triggering gift tax consequences or using any of their lifetime exemption. For married couples, that amount doubles to $38,000 through gift splitting. So, for example, a married couple with three children could move $114,000 out of their estate every single year without any tax implications. And that doesn’t even include gifts to grandchildren or other beneficiaries, which can really expand the impact over time. This is why gifting is so attractive in this context—it allows people to gradually and strategically move assets out of their estate in a way that reduces both current and future tax exposure.

Another commonly used strategy in this estate tax planning / high net worth space is gifting appreciating assets, like stocks, real estate interests, or ownership in a business. This can be especially powerful because it removes not just the current value of the asset from the estate, but also all of the future appreciation. So if you gift something that grows significantly over time, all of that growth happens outside of your taxable estate. There are also more advanced planning techniques that can create valuation discounts and allow even more wealth to be transferred efficiently. Those strategies can get pretty technical, but the big picture takeaway is that this kind of gifting is very intentional, very strategic, and typically done with a lot of, A LOT of professional guidance.

Now let’s shift to the second scenario - gifting assets to “protect assets from the nursing home.” This is where people will sometimes transfer assets, like their home or investment accounts, to their children or other family members years before they think they might need long-term care. The idea is that by getting those assets out of their name, they will be able to qualify for Medicaid to cover nursing home costs, while still preserving something for their family. I understand the thought process, but I need to say this very clearly: this approach is often problematic and can backfire in a big way.

Now something to know is that Medicaid has what’s called a lookback period, which means they review, or can review, your financial history for a set number of years when you apply for benefits. If they find that you transferred assets during that number of years, they can impose a penalty period where Medicaid will not cover your care. And the length of that penalty is based on the value of the assets you gave away. So instead of solving a problem, you may actually be creating a situation where you’re ineligible for coverage right when you need it most.

On top of that, once you gift an asset, you lose all control over it. If your child goes through a divorce, faces bankruptcy, gets sued, or simply mismanages the asset, there is nothing you can do about it. It is no longer yours. There’s also no legal obligation that they use that asset to help care for you later. And another major issue that often gets overlooked is the tax impact. When assets are inherited, they typically receive a step-up in basis, which can significantly reduce capital gains taxes. But when assets are gifted, that step-up doesn’t happen - so you could be unintentionally creating a tax burden for your children down the line.

All of this is why this strategy can be so risky. Between potential Medicaid penalties, loss of control, and negative tax consequences, it can create FAR MORE problems than it actually ends up solving. There are often better and more appropriate planning options available, whether that’s exploring long-term care insurance while you’re still healthy and eligible, setting up properly structured trusts, or implementing other Medicaid-compliant strategies with professional guidance. The key is doing this thoughtfully and proactively, not reactively. Because if you are doing it reactively, you may be too late – especially with the lookback periods at play.

And this brings me to one of the biggest points I want people to take away from this conversation: a gift is a gift. It is not longer your asset. I jokingly call this “untakeabackable”—yes, I made that word up, and no, I don’t plan to stop using it. But the reason it sticks is because it captures something really important: once you have made a gift, you have permanently given up ownership and control. There is no legal right to reverse it if your circumstances change. And I have seen real-life situations where someone gifted an asset, later realized it was a mistake, and the recipient simply refused to give it back. And legally, they didn’t have to. (Crazy enough, that story actually involved farmland – Dad gifted shares of the farm business and when he asked for the shares back, after he realized what he did … did not accomplish what he was trying to do, I kid you not … the son said, “Sorry Dad! I’m not gifting it back.”)

That level of finality is what makes gifting particularly risky, especially as people get older and their needs may change. You might need those assets for your own care, your own flexibility, or options you cannot fully anticipate right now. Think about something like your home. If you gift your home to your children, you are not just giving away a piece of property – you may be giving away your financial security and your autonomy. If you later need that equity to pay for care, or you want to sell and move, or your circumstances change in any way, you no longer have control over that decision. And even if your children want to help reverse it, doing so can create additional tax consequences or Medicaid complications.

So yes, I may be a little biased, but I really do love the term “untakeabackable” because it makes people pause. It’s a memorable way to highlight the permanence of gifting, and that permanence is something people often underestimate. Gifting is not the same as loaning money or letting someone use an asset - it is a complete and irreversible transfer, unless the recipient voluntarily decides to unwind it. So as we start to wrap this up, here’s the bottom line: gifting can absolutely be a powerful and effective planning tool when it is done intentionally and strategically. But it can also create serious and sometimes irreversible consequences when it’s not done carefully.

Whether you are considering gifting for estate tax planning or as part of long-term care planning, you are dealing with rules that overlap across tax law, Medicaid regulations, and estate planning in ways that are not incredibly easy to understand or navigate. That is why it is so important to work with qualified professionals -financial advisors, tax professionals, and legal counsel - before making any decisions regarding gifting. They can help you evaluate your specific situation, identify potential risks, and guide you toward strategies that protect your future rather than unintentionally putting it at risk.

Alrighty, let’s shift to a sneak peak of next week, which we’re circling back to the “current trends” topic where we talk about things that are going on currently that impact my estate and elder law world – or maybe, things that I have stumbled upon on the news or social media that is relevant to this podcast. Next week is inspired by an article from Realtor.com that highlights how a massive wave of inherited real estate is coming, but a lack of estate planning is putting billions of dollars at risk of getting tied up in disputes instead of reaching intended heirs. It essentially warns that without proper planning, the “Great Wealth Transfer” could become messy, costly, and far less beneficial for families than expected. So yeah. That’s next time. I’ll talk to you then, Legal Tea Listeners, be well and take care!

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