Gifts made shortly before death

Assets transferred in the period immediately before death raise several distinct questions, and they are among the most commonly contested transactions in estate administration.

The tax questions

Certain transfers are pulled back into the estate. Gift tax paid on transfers within a defined period before death is included in the taxable estate, which prevents a deathbed gift from reducing the estate by the amount of the tax as well as the gift.

Life insurance transferred within a defined period before death is generally included in the estate, which defeats the purpose of transferring a policy at that point.

Transfers with retained interests or powers can be included regardless of when they were made, where the person kept the use or control of the asset.

A common example is transferring a home to children while continuing to live in it, which frequently results in the property remaining in the estate.

The basis consequence. Gifted assets carry over the donor's basis; assets held at death receive an adjustment to market value.

Which means a deathbed gift of an appreciated asset can transfer a capital gains liability that would have disappeared days later — a costly error for estates with no estate tax exposure.

The Medicaid question

Frequently more consequential than the tax question.

Medicaid eligibility for long-term care involves a lookback period during which transfers are examined.

Gifts made during that period can produce a penalty period of ineligibility, calculated by reference to the amount transferred.

The penalty period generally begins when the person would otherwise be eligible, which means it bites at the point care is needed.

Which produces the worst possible outcome: assets given away, care needed, and no eligibility.

Certain transfers are exempt — to a spouse, to a disabled child, and in defined circumstances to a caregiver child who lived in the home and provided care.

These exemptions are specific and worth understanding before making any transfer in later life.

The undue influence question

Where family disputes concentrate.

A substantial transfer made shortly before death, particularly to someone who was caring for the person or managing their finances, is the classic fact pattern for a claim.

The factors examined are the same as for will contests: a confidential relationship, the recipient's involvement in arranging the transfer, isolation from other family, and a departure from previous intentions.

The person's capacity at the time of the transfer is also frequently disputed.

These claims are difficult to defend after the fact, because the person who could explain the transfer is not available.

When such transfers are appropriate

Some are entirely legitimate.

Continuing an established annual gifting programme.

Completing a transfer that was planned and documented well in advance.

Making a transfer for a specific and documented purpose.

Using annual exclusion gifts where the estate genuinely faces tax.

What distinguishes them is documentation, consistency with prior behaviour, and independence of decision.

How to do it defensibly

Where a transfer in later life is genuinely intended.

Document the reasoning contemporaneously, in the person's own words where possible.

Obtain independent legal advice for the person making the transfer, with the recipient not present.

Obtain a capacity assessment where any question might arise.

Keep the recipient out of the arrangements. The recipient organising the transfer is the single most damaging fact in a later dispute.

Tell the other family members, which removes the element of discovery.

Consider whether it can wait. Where the tax and eligibility position would be better served by holding the asset, waiting is frequently the correct answer.

For executors

Transfers in the final period should be identified and examined.

Bank statements for the preceding years will show them, and an executor has an obligation to investigate where something appears irregular.

Where a transfer appears to have been improperly obtained, the estate may have a claim to recover it, and the executor should take advice rather than either ignoring it or acting unilaterally.

General information only, not legal or tax advice. Inclusion rules and Medicaid lookback provisions are technical — consult a qualified elder law or estate attorney before making transfers.