When you’ve worked hard during your life to build wealth, it’s natural to want to pass it on to your loved ones. As a result, your estate planning needs may include asset protection. Gifting is one asset protection strategy you might use to achieve your long-term planning goals. An experienced attorney can help you understand the benefits and advantages of adopting a gifting strategy as part of your estate plan to protect your assets and wealth.
How Does Gifting Help with Asset Protection?
In a gifting strategy, you transfer assets to another person without receiving something of equal value in return. For example, you might write a family member a check to gift them a large sum of money. Although people give gifts to family members for sentimental reasons or to help loved ones with their financial affairs, gifting can also provide benefits for the giver. For example, gifting money or assets can reduce the size of a person’s estate, which can help mitigate estate taxes or allow a person to meet asset eligibility requirements for government benefits to cover long-term care or nursing home costs.
Benefits of Gifting as a Long-Term Planning Tool
Some of the ways that gifting can serve as a long-term estate planning and asset protection tool include:
- Reducing Estate Taxes – In most cases, gifts can reduce the size of a person’s estate, which can minimize potential estate taxes when they pass away or help them get under estate tax exemption thresholds to avoid estate taxes altogether.
- Facilitating Medicaid Eligibility – Gifting can help reduce a person’s total assets to get under the threshold for Medicaid eligibility, allowing that person to qualify for benefits that can help with the cost of long-term care.
- Conducting Wealth Transfers – A gifting strategy can facilitate intergenerational wealth transfer by allowing individuals to pass on their wealth to loved ones slowly.
- Protecting from Creditors – Gifting can provide creditor protection by removing assets from the donor’s estate, which may shield those assets from future creditors and preserve wealth for beneficiaries.
Key Rules and Limitations to Know
Gifting strategies should consider the IRS’s gift tax exclusion rules. Federal tax law allows a person to give up to a certain amount of money to another person every year (as of 2025, $19,000) without incurring federal tax liability. Each individual gets an annual gift tax exclusion, meaning that a person in 2025 can give $19,000 each to as many people as they want without incurring gift taxes.
Federal tax law also provides a lifetime gift and estate tax exemption separate from the annual gift tax exclusion. A person who gives gifts to another individual that exceed the annual gift tax exemption can avoid gift taxes by deducting gifts that exceed the annual exclusion from their lifetime gift tax exclusion. Any remaining portion of a person’s lifetime gift tax exclusion also serves as an exclusion for federal estate taxes.
Other limitations on gifting that you should know include:
- Loss of Control of Assets – Gifting assets means transferring legal ownership and control of those assets to the recipient.
- Medicaid Lookback Periods – Medicaid rules can include any gifts made within the five years before a person’s benefits application as part of the person’s estate for determining whether they meet the asset threshold, which can result in the imposition of penalties that delay receipt of Medicaid benefits.
- Potential Fraudulent Transfer Claims – A creditor may assert that a person’s gifts constitute a fraudulent transfer if the person made the gift with the intent to defraud creditors and prevent them from recovering debts or liabilities from those gifted-away assets.
Contact an Estate Planning Attorney Today
Incorporating a gifting strategy into your estate plan can help you protect your family wealth. Contact ELG Estate Planning today for a confidential consultation with an estate planning attorney to discuss how gifting can serve as an asset protection strategy to achieve your long-term financial planning goals.