Instead of waiting until they are gone, some people prefer to make gifts during their lifetime so that they can experience the impact their gifts make on the beneficiaries. Paying for a grandchild’s college expenses, for example, lets you immediately feel the effects of your generosity as you watch your grandchild further his or her education. Lifetime gifting can also be a strategic part of an estate plan, potentially reducing future estate taxes and simplifying the transfer of assets; however, gifting without a comprehensive understanding of the implications can result in legal and financial problems. To help you avoid making costly mistakes, the attorneys at Legacy Care Law Firm discuss common lifetime gifting mistakes.
- Ignoring the Impact of Gifting on Long-Term Care Eligibility: Older adults often gift assets to family members in the hope of preserving wealth, but this can backfire when it comes to qualifying for long-term care coverage through Medicaid (called NH Medicaid in New Hampshire). The state follows a five-year “lookback” rule, which means that gifts made within five years of applying for Medicaid can lead to a period of ineligibility. Even seemingly modest gifts can trigger a penalty period, leaving you responsible for covering long-term care costs out of pocket should you need care. If your goal in making a lifetime gift is to protect the assets, a better option may be the creation of an irrevocable trust or the use of another Medicaid planning strategy that also protects your eligibility for benefits if you need them down the road.
- Giving Without Considering the Recipient’s Ability to Manage the Asset: Not every gift is as beneficial to the recipient as you may believe it to be. “Gifting” highly illiquid, expensive-to-maintain, or encumbered property can burden the recipient rather than provide support. For example, a timeshare or commercial property that carries tax liabilities, homeowner association fees, or debt might create financial strain or administrative headaches for a loved one. To avoid this mistake, consider formal structures like family LLCs or partnerships when gifting complex business interests or real estate because these entities can provide ongoing management and protect both parties from unanticipated complications
- Misunderstanding Federal Gift Tax Limits: One of the most frequent errors in lifetime gifting involves misinterpreting the federal gift and estate tax system. Each year, individuals are allowed to give up to a set amount per recipient without the need to file a gift tax return. As of 2025, that annual exclusion is $19,000 per recipient. Spouses may combine their gifts to give up to $38,000 to one person in a single year. Gifts above that threshold require filing IRS Form 709, even if no immediate tax is due. Many assume that gifts to children or other family members are exempt from reporting requirements; however, that is incorrect.
- Failing to Accurately Value Non-Cash Gifts: When giving away assets that are not cash, such as real estate, collectibles, or privately held stock, accurately determining the fair market value is essential. Overvaluing can reduce your available lifetime exemption unnecessarily, while undervaluing may result in IRS penalties. To avoid disputes or audit complications, a professional appraisal is often necessary. If a valuation is challenged by the IRS, it can affect your future exemption amount and trigger interest or penalties.
- Making Gifts Without Consulting an Estate Planning Attorney: Some of the most serious gifting mistakes arise when individuals act without proper legal and/or financial advice. While minor cash gifts may not require professional input, transferring a home, business, or investment account should never be attempted without first consulting an estate planning attorney and financial advisor. Improper documentation, incorrect titling, or failure to file required tax forms can create confusion, liability, and even litigation. An estate planning attorney can help you evaluate whether a gift makes sense and ensure it is structured correctly for tax and legal purposes.
- Overlooking the Role of Cost Basis and Capital Gains: Another often-overlooked aspect of gifting is the transfer of the asset’s cost basis. When you gift an asset during your lifetime, the recipient inherits your original basis, not the asset’s value at the time of the gift. If they later sell the asset, they may owe capital gains taxes on the difference between your purchase price and their sale price. This can result in a large tax bill. For instance, imagine that you purchased a home 20 years ago for $100,000 and the home is now worth $400,000. If you gift that home to your adult child who then sells the home, your child may be on the hook for capital gains taxes on the $300,000 gain. Conversely, if you gifted the home in your Will, your child would receive a “stepped-up” basis, meaning the basis used to compute capital gains taxes would be the value of the home at the time of inheritance – in this case, $400,000 – meaning that no capital gains tax would be due.
- Exceeding the Lifetime Exemption Without Realizing It: The IRS allows individuals to gift up to a lifetime exemption amount without triggering immediate taxes. For 2025, this exemption is $13.99 million per person. Once that amount is exceeded, additional gifts made during your lifetime or after your death may be subject to federal estate tax. Unfortunately, many people do not keep track of gifts that exceed the annual exclusion. Unmonitored gifting can unintentionally exhaust your lifetime exemption, leaving your estate vulnerable to unexpected tax obligations. Moreover, the exemption is scheduled to decrease to just over $5 million at end of 2025.
- Making Gifts That Conflict with Your Estate Plan: One of the most preventable errors in gifting is making substantial lifetime transfers without updating your estate plan. If you give one child a large sum or asset today and your Will divides your estate equally among all your children, the others may view the gift as an unfair advantage. This can lead to legal disputes, hurt feelings, and probate litigation. Even worse, ambiguity around whether the gift was an advancement on inheritance or a separate, unconditional gift can lead to confusion. It is important to document such gifts clearly and update your estate documents to reflect your intentions. A written memo or addendum can clarify how the gift should be treated, and your trust or will can include specific language to equalize distributions if necessary.
- Neglecting to Consider Other States’ Laws When Gifting Property: Although New Hampshire does not impose a gift tax or inheritance tax, Massachusetts does. Even if you are a New Hampshire resident, it is a mistake to assume that you can freely transfer assets without legal or tax complications, particularly if you are gifting assets or property located in another state. If you own real estate, business interests, or investments located in other states you should consult with an estate planning attorney who is familiar with multi-jurisdictional estate planning to ensure that your gifting intentions are legally enforceable and tax-efficient.
Can We Help You Avoid Making Lifetime gifting Mistakes?
For more information, please join us for an upcoming FREE seminar. If you would like assistance to avoid making costly lifetime gifting mistakes, contact our estate planning attorneys in our North Andover, Woburn, and Beverly offices at (978) 969-0331. Our Salem and Nashua, New Hampshire office can be reached at (603) 894-4141.
Attorney Daniel A. DeBruyckere has been practicing law in New Hampshire and Massachusetts since 1998, and has helped hundreds of clients with their estate planning and elder care issues. He is very well respected in the area of estate planning, probate, trust administration, elder law issues, and business planning Read More!
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