Many parents want to help their children when it matters most, not just after they’re gone. Whether it’s helping with a first home, college tuition, or starting a business, the idea of passing on part of an inheritance early can be appealing. But before you start writing checks, it’s important to understand the tax rules, potential consequences, and smart ways to give. The good news? With the right strategy, you can provide meaningful support now while protecting your own financial future.
Gift Tax Rules to Know
The IRS allows you to gift a certain amount each year to each recipient without triggering any gift tax. This is known as the annual exclusion, and for 2025, it’s $19,000 per person. Married couples can double that amount and give $38,000 per child without needing to file a gift tax return.
If you give more than that, you’ll need to report the gift to the IRS. The amount over the limit counts against your lifetime gift and estate tax exemption, which is currently $13.99 million per person. This means most people won’t owe taxes, but it’s still important to track gifts properly.
Massachusetts does not have its own gift tax, but large gifts made before death can still affect how your estate is taxed after you pass. An estate planning attorney can help you coordinate your gifting strategy with your overall plan.
How Gifting Impacts Medicaid Eligibility
Before making large gifts, consider how they might affect your long-term care options. In Massachusetts, MassHealth (Medicaid) has a five-year “lookback” period. That means if you apply for nursing home benefits, the state will review any gifts or transfers you made in the past 60 months.
If they find gifts during that period, it can delay your eligibility and create a penalty period where you must pay out of pocket. For example, if you gave $100,000 to your children within the last five years, you could be disqualified from receiving benefits for several months or longer, depending on current cost-of-care calculations.
Timing is everything. If you want to help your children and preserve eligibility for benefits, you’ll need a plan that accounts for both.
Benefits of Giving an Early Inheritance
There are many good reasons to consider sharing part of your estate during your lifetime:
- See the impact: You get to watch your gift help your children in real time.
- Reduce your estate: Making gifts while you’re alive may lower the size of your taxable estate.
- Offer guidance: Giving now lets you explain your intentions and provide context.
It can also bring peace of mind, knowing you’ve contributed to your family’s well-being when they need it most.
Potential Drawbacks to Consider
While early gifting can be rewarding, it may not be the right move for everyone. Some of the risks include:
- Diminished resources: You may need those funds later for retirement, healthcare, or unexpected expenses.
- Uneven expectations: Giving to one child now might raise questions with others.
- Medicaid penalties: As discussed earlier, gifts made within five years of needing long-term care can delay benefits.
In short, generous intentions should be balanced with thoughtful planning.
Gifting Strategies That Work
If you’d like to give to your children before you pass, there are smart ways to do it:
- Use the annual exclusion: Make yearly gifts under the IRS limit to avoid paperwork or tax consequences.
- Pay providers directly: Tuition or medical bills paid directly to schools or hospitals don’t count toward the gift limit.
- Try partial gifts: Instead of transferring a large sum all at once, consider spreading gifts out or using a revocable trust or irrevocable trust to set conditions or protections.
- Document everything: Keeping good records helps you and your family stay on the same page and avoid misunderstandings later.
Every family is different, so your plan should reflect your goals, your financial situation, and the level of control or flexibility you want.
Talk to a Massachusetts Estate Planning Attorney
Gifting to your children during your lifetime can be a meaningful part of your estate plan, but only if it’s done wisely. At Surprenant, Beneski & Nunes, P.C., we help clients throughout Massachusetts create thoughtful strategies that support their families while protecting their long-term needs.
Whether you’re thinking about one-time gifts or a more structured plan, we can guide you through the legal and financial considerations. Contact us today to start a conversation about the best way to support your loved ones—now and in the future.