Lately I have been asked, "Should I make gifts to my children?" - Especially as year end approaches. What appears to be a simple question may have a very complex answer. In analyzing tax aspects, it is easy to miss other very important factors which should be considered before the you make decisions on gifting. Tax issues are extremely important – however, they are not the only consideration.
If you are deciding whether to make a gift to your children before the year ends, here are some pros and cons to weigh with your attorney and accountant in regard to the gifting question include:
Pros:
Satisfaction of seeing donees enjoy gifted assets during the donor's lifetime
Lower annual income tax
Potential protection of assets from future expenses
Probate avoidance
Estate tax savings, both in reducing the taxable estate by gifting assets, and by moving the income and appreciation on those assets to donees.
Cons:
Potential loss of step-up in basis
Loss of homestead credit, exclusion from capital gain on sale of a personal residence, and other benefits accorded an owner of a personal residence
Loss of control of assets and the effect of that relinquishment of control on the client's independence and family relationships
Loss of income generated by the gifted assets
Medicaid issues
