One of the most common questions we receive about Mississippi estate planning is about the rules and implications of gifting money or property during one's lifetime. Below are 8 important things to consider before gifting money to your children or grandchildren. 

1. Federal Gift Tax Exemption

At the federal level, the IRS allows individuals to give away a certain amount of money or property each year without incurring a gift tax. As we end 2023, the annual exclusion amount is $16,000. This means you can give this amount to as many individuals as you wish each year without having to pay any gift tax or even report the gifts. However, if your gift to any individual exceeds this limit, you must file a gift tax return, although you might not necessarily owe tax due to the lifetime exemption.

2. Lifetime Gift Tax Exemption

In addition to the annual exclusion, there's a lifetime exemption on gifts. This is the total amount you can give away over the course of your lifetime without incurring a gift tax. This exemption amount is quite substantial, but it's crucial to understand that it's shared with the estate tax exemption. This means the gifts you give during your lifetime will reduce the amount you can leave tax-free at your death.

3. Mississippi State Law Considerations

Mississippi does not have a state gift tax, which simplifies gifting for residents. However, it's important to consider how these gifts might affect your overall estate plan, particularly in relation to your final distributions under your Will or Trust. Strategic gifting can be a tool to manage your estate's value and potentially reduce future estate taxes.

4. Special Rules for Educational and Medical Expenses

A unique aspect of gifting rules involves paying for someone else's medical or educational expenses. Payments made directly to a medical institution or educational institution for someone else's benefit are not considered taxable gifts, regardless of the amount. This exception can be a significant estate planning tool.

5. Gifting for Medicaid Qualification

When considering Medicaid qualification, the rules around gifting become more complex. Medicaid has a look-back period of five years during which they review all transfers of assets. Gifts made during this period can affect eligibility for Medicaid long-term care benefits. Transferring assets to meet the asset limit can result in a penalty period, during which the person may be ineligible for Medicaid benefits. Therefore, it's essential to plan well in advance and consult with an estate planning attorney to navigate these rules effectively.

6. Alternatives to Direct Gifting: Trusts

For those who want more control over their gifted assets, setting up a trust can be an effective alternative. Trusts, such as a living trust or an irrevocable trust, offer various benefits, including asset protection, tax advantages, and specific stipulations on how and when the assets are distributed. For example, a trust can be established for the benefit of a family member with conditions attached to the distribution of the trust assets. This method allows for a more structured approach to gifting, potentially aligning better with long-term estate planning goals.

7. Documentation and Record-Keeping

Proper documentation and record-keeping are crucial, especially if you're making substantial gifts. Keeping track of these gifts will help in understanding the impact on your overall estate plan and ensuring compliance with IRS requirements.

8. Consultation with an Estate Planning Attorney

Each estate is unique, and strategies that work for one person may not be suitable for another. Schedule a call if you have questions about end of year gifting.

In conclusion, understanding the rules of gifting is an essential aspect of estate planning. By being aware of the federal and state regulations and considering your overall estate strategy, you can make informed decisions that align with your long-term goals and legacy.