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How to Avoid Mistakes When Making Gifts in Your North Dakota Estate Plan - Thompson Law, PLLC

Thompson Law, PLLC

Estate & Business Planning Attorneys in Sioux Falls, South Dakota

Sioux Falls

605-362-9100

Grand Forks

701-738-0060
Estate Planning Attorneys Licensed in South Dakota, North Dakota, Minnesota, Iowa, and Nebraska

How to Avoid Mistakes When Making Gifts in Your North Dakota Estate Plan

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North Dakota gifts mistakes

Like many people, you may prefer to gift assets to loved ones while you are alive instead of waiting until your estate is distributed after your death. After all, lifetime gifts allow you to see the results of your generosity in real time. Paying for a grandchild’s education, for instance, can give you the joy of watching them succeed academically. Other gifts make more sense to enact after you pass away, such as gifting the family residence to adult children. Regardless of when you gift assets, gifting without understanding the legal, tax, and financial consequences can have unintended results. Poorly executed gifts may disqualify you from public benefits, create unexpected tax bills, or cause disputes among family members. To help you avoid making mistakes, an attorney at Thompson Law outlines common mistakes people make when making gifts in their North Dakota estate plan as well as discuss strategies to help you prevent making them.

  1. Overlooking the Importance of Working with an Estate Planning Attorney. Perhaps the most damaging mistakes occur when individuals attempt to make substantial gifts without professional guidance. While small cash gifts usually carry little risk, transferring significant assets such as a residence, investment account, or business should never be done without consulting an attorney and a financial advisor. Improper documentation, incorrect titling, and failure to file the necessary tax forms can lead to confusion, disputes, and even litigation. An estate planning attorney can review your objectives, ensure compliance with federal and state laws, and help you determine whether gifting is truly the best strategy.
  2. Misunderstanding the Annual Exclusion. One of the most frequent errors occur when individuals do not fully understand the federal gift tax rules. Every year, the Internal Revenue Service sets an “annual exclusion” amount that you may give to an unlimited number of beneficiaries without reporting the gift. For 2025, that amount is $19,000 per recipient. Married couples can combine their exclusions, which means they can give $38,000 to a single person in one year without filing a gift tax return. What many people do not realize is that exceeding this exclusion does not always trigger immediate taxes but does require filing IRS Form 709. Failing to do so can result in penalties or future complications for your estate. Another common misconception is that gifts to close relatives such as children are automatically exempt when, in fact, the rules apply regardless of the recipient.
  3. Exceeding the Lifetime Exemption. In addition to the annual exclusion, the IRS allows individuals to give away assets valued up to the current lifetime exemption amount without incurring gift tax. For 2025, that amount is $13.99 million per individual; however, recent changes to the law will result in that figure increasing to $15 million for 2026. Once the exemption is exhausted, additional gifts, either during life or after death, may be subject to federal estate tax. One of the most common problems is that individuals fail to keep track of gifts above the annual exclusion, which must be reported even if no immediate tax is due. Over time, these unmonitored gifts can accumulate and unexpectedly consume the lifetime exemption. Careful monitoring and recordkeeping are crucial to avoid unpleasant surprises for your estate and beneficiaries.
  4. Failing to Account for Long-Term Care Planning. Another significant mistake is transferring assets without considering how those gifts will affect your eligibility for Medicaid. In North Dakota, as in other states, Medicaid applies a five-year “lookback period” to determine whether an applicant has transferred assets for less than fair market value. If gifts were made within that timeframe, Medicaid may impose a penalty period during which you are ineligible for coverage. Even modest transfers to children or grandchildren can create problems if you later need nursing home care. With annual costs for nursing homes in North Dakota often exceeding $150,000, a period of ineligibility could mean exhausting personal savings before benefits begin. To prevent this situation, Medicaid planning should be incorporated into your estate plan, often using irrevocable trusts or other asset protection strategies.
  5. Making Gifts That Conflict with Estate Planning Documents. Another preventable mistake is failing to coordinate lifetime gifts with your overall estate plan. If you transfer a substantial asset to one child during your lifetime but your Will divides property equally among all your children, the result may be a family conflict. Siblings who feel disadvantaged may contest the estate, leading to costly litigation and fractured relationships. To avoid this, clearly document whether a gift is intended to be an “advancement” of inheritance or a separate benefit. Updating your Will or trust to reflect the transfer is also important. Including specific language to equalize distributions ensures that all beneficiaries understand your intentions and minimizes the risk of disputes.
  6. Overlooking the Role of Cost Basis and Capital Gains. A gift of property often carries hidden tax consequences related to cost basis. When you transfer an asset during your lifetime, the recipient inherits your original purchase price, not the current value. If they later sell the asset, they may face a substantial capital gains tax bill. Consider a North Dakota resident who purchased farmland for $200,000 thirty years ago. If the land is now worth $1 million and is gifted to a child who then sells it, the child must pay capital gains tax on the $800,000 difference. If the same property had been inherited through a Will or trust after the death of the owner, the recipient would have received a “stepped-up” basis, resetting the value to $1 million at the time of death and eliminating the tax liability.
  7. Assuming All Beneficiaries Can Handle a Lump-Sum Inheritance. Many individuals believe that leaving a large cash gift or valuable property outright at death is the simplest approach. While it may seem efficient, giving significant assets outright can be problematic for beneficiaries who are inexperienced with money, struggle with debt, or face personal challenges such as addiction. A lump-sum gift may be quickly spent or lost to poor financial decisions. The better option for such beneficiaries is often a trust established under your Will or revocable living trust. A trust allows you to set conditions, provide ongoing management, and stagger distributions over time, ensuring that your legacy provides long-term support rather than a fleeting windfall.
  8. Failing to Coordinate Beneficiary Designations with Your Will or Trust. A common and costly mistake is assuming that gifts made in a Will or trust will control the distribution of all your assets. In reality, many assets, including retirement accounts, life insurance policies, and payable-on-death (POD) accounts, transfer directly to named beneficiaries. If the designations on those accounts are outdated, they may conflict with the gifts outlined in your estate plan. For instance, if you leave your estate equally to your three children in your Will but have an old retirement account naming only one child as beneficiary, that account will bypass your estate and go directly to the named individual. This type of inconsistency can lead to disputes and unequal distributions. Regularly reviewing and updating all beneficiary designations ensures that your lifetime planning and your post-death transfers are aligned.

Can We Help You Avoid Making Mistakes When Making Gifts in Your North Dakota Estate Plan?

Please join us for an upcoming FREE seminar or webinar. If you would like assistance to avoid making common mistakes when gifting in your North Dakota estate plan, contact a North Dakota  estate planning attorney at Thompson Law by calling 605-362-9100 to schedule an appointment.

Raymond German, Estate Planning Attorney
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