Mistakes to Avoid in Lifetime Giving – Final

This post has our final mistakes to avoid in doing lifetime giving:

• If you are doing Medicaid planned gifts, remember that all transfers for less than FMV are subject to a lookback period of 60 months.
• Avoid gifts of installment contracts to anyone other than a spouse.  A disposition, which a gift is, will result in immediate gain recognition for the different between fair market value and the tax basis in the note.  Even though you are not getting any cash, you get to pay the tax.
• Be aware of issues in transferring any IRA or other retirement plans.  A gift of an interest in these plans is considered a distribution from the plan and may be subject to the 10% premature penalty tax if the owner is less than 59 1/2.
• Gifts of income producing property into trusts may cause more of the income to be taxed at the highest tax rate.  Trust income is subject to the maximum federal tax rate at about $12,000 of income.  This may cause unintended extra taxes if care is not taken.

Lifetime giving is well worth the effort, however, there are several mistakes that can occur.  Discussing your plan with your tax advisor makes sense now and in the future.

Paul Neiffer, CPA