Pros and Cons of Gifting Before Death

Dec 19

Not many folks likely think about this particular option, but giving away property and assets before you die can enhance the lives of your loved ones and simplify matters upon your death.

The first and most significant question is whether you can afford to make the gift. Giving away assets you need to live on wouldn’t make much sense. So, carefully evaluating your financial situation and future plans is in order. The most significant risk is that you cannot support yourself if your needs change or there’s an economic downturn. One way to manage this risk is to make multiple small or incomplete gifts. For example, you could purchase and pay for a whole-life policy every month. At some point in the future, it would have cash value that you can gift to a family member, but until then, you could cash in the policy if financial hard times require it.

If you have extra assets or funds, it can be rewarding to gift those assets before death. You could give your child or grandchild money for a down payment on a house. In this way, they can become homeowners earlier in life and accumulate equity sooner. Or, you could start a college fund for your grandchild at her birth. New parents rarely have the time, energy, or excess income to start saving for college for a newborn, so grandma is in a better position to make that happen. In 18 years, that college fund could mean your grandchild graduates debt-free and has choices many of her peers do not. She could take a year to travel the world, join the Peace Corps, or take a job that pays less but allows her to be creative and happy.

Giving a gift is rewarding, and you can enjoy knowing that you have had a present and positive impact on your family. However, if you have expectations about how the gift will be used or spent, you should be clear and upfront about those expectations before you make the gift. If those expectations are pivotal to you, you may want to put formal restrictions on the gift, like placing it in a trust. Otherwise, accept that once the gift is made, the recipient decides when and how to use it or spend it. Gifting before death also means that, in theory, your estate is smaller and, hopefully, less complex. Probate is more straightforward or may be avoided altogether.

Avoiding probate is probably not a good reason for gifting before death, but it may be a nice side benefit. Even while gifting can feel good and help others, it can have negative consequences if the person making the gift later needs to apply for government benefits, such as veterans benefits or Medicaid benefits, because these programs ‘look back’ either 3 or 5 years, respectively, from the date of the application for benefits and penalize the gift giver for giving away money. So, be careful when making gifts and talk with an elder law attorney before taking that crucial step.

assetsestate planninggiftinggifting before deathproperty

Amelia Crotwell, JD

Amelia Crotwell, founder and managing partner at Elder Law of East Tennessee, has guided families through long-term care and special needs challenges for nearly two decades. Specializing in Life Care Planning and special needs trusts, Amelia also collaborates across all areas of elder law, including wills, trusts, Medicare, Medicaid, probate, and veterans benefits planning. Certified as an Elder Law Attorney since 2011, she is president-elect of the Life Care Planning Law Firms Association and co-chair of their strategic planning committee. Amelia is deeply involved in the Special Needs Alliance and a prominent member of the National Academy of Elder Law Attorneys. She played a key role in founding the Tennessee chapter of NAELA, serving as its first president. A member of the Tennessee Bar Association and past chair of its Elder Law Section Executive Council, Amelia also dedicates time to pro bono work and community education. She earned her J.D., summa cum laude, from the University of Tennessee College of Law and teaches Elder Law there as an adjunct professor since 2018.