Gifting Assets to Family in NC? Avoid These Costly Mistakes With Taxes, Medicaid, and Probate
The Truth About Gifting
Gifting assets to family members can feel like a heartfelt gesture. Gifting is a way to help your children buy a home, fund a grandchild’s education, or ensure your legacy stays in the family. But in North Carolina, what may seem like a generous, common-sense move can have surprising tax consequences, jeopardize long-term care eligibility, and even spark family disputes. Before you transfer that deed or write that big check, it’s important to understand the legal, financial, and emotional ripple effects of your decision.
A Cautionary Tale: When a Home Transfer Backfires
Two years ago, Robert decided to sign over his paid-off home to his daughter, thinking it would save her the hassle of probate when he passed away. On paper, it seemed like a thoughtful way to keep things simple. What Robert didn’t realize was that this “simple” transfer meant losing his legal ownership.
When his daughter went through a divorce just a year later, the home , now legally hers, became part of the marital property battle. The court considered it her asset, and Robert had no legal rights to reclaim it. The home he worked for decades to pay off was suddenly at risk of being sold to satisfy a divorce settlement. What began as a loving gift turned into a legal nightmare, creating tension, stress, and financial uncertainty for everyone involved.
Unfortunately, Robert’s story is not unusual. Many North Carolina families don’t realize that gifting property outright can leave it vulnerable to life events like divorce, lawsuits, bankruptcy, or financial mismanagement.
What Counts as a “Gift” Under the Law?
The term “gift” in the legal and tax world means any transfer of property or money to someone else without receiving equal value in return. This can include:
Transferring ownership of a home or land.
Giving large sums of cash.
Adding someone’s name to a bank account.
Transferring shares in a family business.
Paying significant expenses for someone else (college tuition, medical bills, etc.).
Federal Gift Tax Rules
In 2025, you can give up to $19,000 per person per year without filing a gift tax return. This is called the annual exclusion.
Gifts above that amount count toward your lifetime gift and estate tax exemption ($13.99 million per individual in 2025).
While most people never reach that lifetime limit, large gifts still require filing IRS Form 709 to report them.
North Carolina Gift Tax Rules
North Carolina has no state gift tax. However, federal rules still apply, and the way gifts are handled can impact state-specific concerns like Medicaid eligibility and property tax assessments.
The Hidden Pitfalls of Gifting in North Carolina
Gifting can have serious, unintended consequences. Here are some of the most common, and costly, pitfalls.
1. Loss of Control Over the Asset
Once you give an asset away, you no longer own it. This means:
The recipient can sell it, mortgage it, or give it away without your consent.
The asset can be claimed by the recipient’s creditors.
In a divorce, the gifted asset may be considered marital property.
This is exactly what happened to Robert. His gift of the family home left him powerless to prevent it from being entangled in his daughter’s divorce settlement.
2. Medicaid’s Five-Year Look-Back Period
If you need long-term care in a skilled nursing facility, Medicaid can help cover costs, but only if you meet strict financial eligibility rules.
In North Carolina, Medicaid has a five-year look-back period. That means if you give away assets within five years of applying for Medicaid, those gifts can trigger a penalty period during which you’re ineligible for benefits.
Linda’s story:
Linda wanted to help her son expand his small business, so she gave him $100,000. She didn’t realize that:
This amount far exceeded the annual gift tax exclusion.
It created a “countable transfer” for Medicaid purposes.
If Linda needs nursing home care within five years, Medicaid will impose a penalty period based on the value of that gift. Thus delaying her eligibility for coverage and forcing her to pay out of pocket in the meantime.
3. Capital Gains Tax and Basis Issues
One of the most overlooked consequences of gifting is how it affects capital gains taxes.
If you gift an asset during your lifetime, the recipient inherits your original cost basis.
If they inherit after your death, they receive a “step-up in basis” to the asset’s fair market value at the date of your death.
How This Works
You buy a home for $100,000. Ten years later, your home is now worth $400,000. You decide to gift your home to your child. Now your child’s cost basis is still $100,000. If they later sell, they could owe capital gains tax on the $300,000 increase.
Instead, if you left the home to your child when you die, your child’s cost basis would be $400,000. The inheritance option potentially eliminates most or all of the capital gains tax.
4. Family Conflicts and Unequal Treatment
Gifting to one child now, especially large assets like property, can cause resentment among siblings or other family members, particularly if your estate plan doesn’t address the imbalance. These decisions can create lasting emotional rifts.
When Gifting Can Be a Smart Strategy
Gifting isn’t always a bad idea. It can work well if:
You use the annual exclusion for smaller gifts over time.
You fund 529 college savings plans for grandchildren.
You help pay off a child’s debt with clear documentation and no risk to your own finances.
You gift cash or assets you truly don’t need for your own long-term security.
In these cases, gifting can reduce the size of your taxable estate, help family members now, and still align with your overall financial plan.
Safer Alternatives to Outright Gifting in North Carolina
If your goal is to pass assets efficiently while minimizing risk, consider these alternatives:
Revocable Living Trusts : Allows you to keep control while ensuring assets transfer smoothly at your death, avoiding probate.
Transfer-on-Death (TOD) Deeds: In NC, allows real estate to pass directly to beneficiaries without probate .
Life Estate Deed: Lets you remain in the property for life while naming a remainder beneficiary, though this still has Medicaid implications.
LLCs for Business or Real Estate: Keeps ownership structured, provides liability protection, and can allow for gradual gifting of ownership interests.
North Carolina-Specific Legal Considerations
Medicaid Manual Rules: North Carolina applies federal Medicaid asset transfer rules, including the 5-year look-back, but certain exemptions exist for transfers to spouses, disabled children, or caretaker children.
Probate Avoidance: TOD deeds and properly funded trusts are recognized probate-avoidance tools under NC law.
Property Tax: NC counties may reassess property taxes after a deed transfer. Gifting can sometimes trigger a revaluation.
The Bottom Line
While gifting can seem like a loving and proactive choice, the financial and legal consequences can be serious. From tax implications to Medicaid penalties to family disputes, one well-intentioned gift can have far-reaching effects you never intended.
Before you transfer assets to a family member, whether it’s your home, a large sum of money, or other valuable property, it’s essential to seek legal and financial guidance. The right strategy can help you support your loved ones while protecting your own security and preserving your legacy.
Ready to talk about your gifting plans?
At Mackintosh Law, we help North Carolina families make informed decisions that protect their assets, avoid unnecessary taxes, and reduce family conflict. Schedule your free Discovery Call today and make sure your generosity has the impact you intend, without unintended consequences.
📞 Call us at (919) 336-4219 or click below to book your appointment.
