Each family has its own set of personalities, issues, and circumstances, and “one size” does not “fit all.” Certainly this is the case with gifting money to children or grandchildren. We all like the idea of being able to provide generously for those we love during our life times and after we’re gone – some of us will have that opportunity. But, it’s not a good idea for everyone. I would caution anyone who is a senior citizen and interested in making monetary gifts to speak to a financial planner and an attorney who is familiar with your circumstances before making such a gift.
As with many financial decisions, this decision can be treacherous waters with unforeseen consequences. I’m speaking specifically to my readers who are preparing for and/or concerned about long-term care and how they will manage to pay for it. Something that may have a tremendous tax advantage may be a crucial mistake in a long-term care plan. Therefore, seek professional advice and make sure you understand what your options are and what risks you will be undertaking if you would like to consider monetary gifts to your loved ones.
The “Crummey” Trust is named after a famous case that allowed these special trusts to be considered exempt from gift tax. Some of you may already know that, in 2014 (this amount changes annually, so be sure you stay current), you may gift up to $14,000 to an individual per year (and you could do this for any number of individuals per year – $14,000 each). **This keeps you out of “gift tax” territory – but does not protect you from a penalty for making a transfer for less than Fair Market Value (FMV) if you are applying for Medical Assistance (MA) any time within the next five years (the “five year look-back”).
The law already requires a custodian when creating a Trust for a child (until age 18 or 21, depending on the Trust). But, what about the grandchild who, despite his/her great intentions and successful attainment of legal age, is not a good money manager, and you don’t anticipate that changing anytime in the near future. A Crummey Trust is a way to make sure your gifts get the tax benefit and the protection of third-party money manager only a trust can provide. But, you have to be willing to let your child or grandchild have a small window of opportunity to exercise his or her own good decision-making skills in order to get the tax benefit (clearly, not all will succeed). This article from elderlawanswers.com (below link) explains it well.
Crummey Trusts are not for everyone. For some, gifting is not an option: maybe these kinds of resources aren’t available; maybe long-term care planning is too risky; and, for some, these sorts of protections aren’t necessary. But, if you think you may fall into a category of someone who has the resources and the need for safeguarding those resources, talk to an attorney who can assist you in evaluating your wishes, advising you on your choices, and drafting your documents.This blog is written by Bridget-Michaele Reischl, Attorney DECORO LAW OFFICE, PLLC www.decorolaw.com ALL READERS: This blog is not, nor shall it be deemed to be, legal advice or counsel. This blog does not create an attorney-client relationship with any reader. It is designed to encourage thoughtful consideration of important legal issues with the expectation that readers will seek professional advice from a licensed attorney. Contact Bridget-Michaele Reischl at: DECORO LAW OFFICE, PLLC 6 West 5th Street, Suite 800-D Saint Paul, MN 55102 [email protected] (651)-321-3058