As a follow-on to Keith’s blog post, Gifting “Limits”, Nate and I recently had a meeting with a client where we dove further into potential estate tax liability. The client’s father had a financial advisor who was recommending that he begin gifting some assets up to the gift tax reporting amount, currently $15,000, in order to reduce their estate. We asked the question of whether the estate was over $11.4 million (in 2019), which is key in determining how much can be left to beneficiaries without estate tax. The answer to that was no, the estate was significantly smaller than that.

The second question was where the client was domiciled. This isn’t as straightforward as it may seem for people with two residences, as this blog post indicates. The answer to this question from our client was “Illinois”, which now illuminated why the advisor was making the suggestion to gift assets: Illinois currently has an estate tax starting at $4 million, which is close to this client’s total asset level. To gift $15,000 to the daughter and another $15,000 to her spouse, this could be used to help reduce assets under Illinois’ estate tax threshold.

It should be noted that states are allowed to set their own estate tax thresholds. While many (including Wisconsin) have mirrored the federal estate tax treatment, others have chosen to be at a much lower level. See this blog post to check on other states and their current estate tax amounts and thresholds.

We also discussed with the client the strategies they may consider when gifting – as we indicated in our previous blog post and this example, the $15,000 “gift tax limit” really doesn’t matter here. Much more could be gifted, but there are secondary considerations at play here; namely, the potential for a lookback by Medicaid if significant assets were gifted while the client was paying for long-term care. It is important to discuss these items with your financial advisor and estate planning attorneys to assure that you are being efficient in your gifting strategies while avoiding stepping on tax or Medicaid landmines along the way.

Clint Walkner