Giving Away Assets Without Considering All of the Consequences

reviewing assets

This is a continuation of a 10-part series discussing mistakes surrounding Medicaid.

What are some of the consequences of giving away assets?

One thing that most people don’t realize is that Medicaid has the right to audit your gift activity for the prior five years. So if you have gifted any assets, Medicaid needs to be notified.

Once an asset is given away, it is gone. You are not able to get it back. You have given up control of that asset.

Liability risk is another consequence of giving assets away for the person that receives the gift. For example, a parent gives their house to their child to avoid probate. Now that house belongs to the child, so if the child gets sued for any reason, that asset is subject to being liquidated.

Another consequence is taxes. The most commonly given asset by parents in particular to avoid things like probate or Medicaid risks is their primary residence. The primary residence is given away with a value of $100,000 dollars (the cost of the home when it was purchased, otherwise known as a cost basis). Over the amount of time that they've lived there, the value of the house has grown to $400,000. Then the house is given to their child. If the child sells that house in the future for a value of $500,000. The amount of taxes they are responsible for is based on the sale value of the house ($500,000) relative to the original purchase price by the parents ($100,000), not the value of the house when it was gifted to them. Which in this case, means the child will have a capital gain of $400,000. The current highest capital gains rate at the moment is 20% which in the example would cost the child $80,000 in taxes and that amount in the loss in value of the estate passed to the child.

We at Skipton Law can help you navigate the special consequences of giving away assets and minimize your risk and liability.

If you’d like further information on anything related to Estate Planning, please contact us at or call us at (720) 440-2774. We also have free workshops you can join on our website.

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