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The most extreme way to avoid probate is to give away all of your assets. With no assets you have no estate to probate. Unfortunately, this is not a completely practical solution since you will need assets to survive on while you are still living and you will typically continue to acquire new assets including social security and pension benefits until the day you die. However, gifting can play an important role in preparing an estate plan to avoid probate. Gifting also comes with several concerns, including gift taxes, cost basis and Medicaid long term care planning concerns.

Each year an individual may gift a pre-set amount to as many people as they choose without incurring a gift tax. For 2020 that amount is $15,000. Spouses are excluded from this rule, and typically you can gift to your spouse an unlimited amount. If you want to make a gift over the annual gift exclusion you will need to file a gift tax return and pay taxes or use part of your lifetime exemption.

Cost basis is the original value for tax purposes, which in most situations is the purchase price. When someone inherits property from a decedent their cost basis is the fair market value of the property on the date of the decedent’s death. If someone acquires property by gift, they receive get a transfer in basis, which is equal to the original owner's basis. A transfer of basis becomes a problem with gifting highly appreciated assets that could subject the new owner to capital gains if the property is later sold.

As you age, you may be looking for ways to pay for long term care, with one option being Medicaid long term care coverage. Gifts given to your loved ones may be penalized by Medicaid and delay your qualification for benefits.

The use of gifts to attempt to avoid probate faces many potential pitfalls. To schedule a free consultation to review your situation in detail to avoid any unforeseen pitfalls or tax liabilities call our Overland Park office at (913) 663--3159 or contact us online.