The new legislation signed into law on December 22, 2017 has significant estate planning changes. The federal estate, gift and generation skipping tax exemption amount is now doubled to $11.2 million per person. This exemption is portable between spouses.
The new legislation also increased the annual gift exclusion amount from $14,000 to $15,000 as of January 1, 2018. This exclusion allows individuals to gift up to $15,000 annually to another individual without utilizing any gift tax exemption amounts.
Residents of New York must keep in mind the New York State estate tax laws have not changed. The New York estate tax exemption amount is $5,250,000. If a New York taxable estate is more than 5% over the exemption amount, the exemption is lost as the tax will be on the entire amount of the estate (the New York “cliff”). There is no portability of this exemption between spouses and the New York estate tax rate goes up to a rate of 16%.
It is important that estate planning documents be reviewed to confirm there are not provisions which are no longer wanted. For example, a person may not want to fund a credit shelter trust for the entire federal exemption amount ($11.2 million) and leave nothing for outright distribution to beneficiaries or to a marital trust.
As when there are changes in personal situations, changes in estate tax legislation present a good opportunity to review the appropriateness of estate planning documents.
In the age of the internet, there is a growing trend amongst the American populace who decide they need a Will to avoid the cost of a lawyer and use a legal services website like Legal Zoom® or use some free Will form found on the internet. However, there are many dynamics that go into estate planning beyond executing a “simple” Will. First, you may have family dynamics or complex assets such as a closely-held business that require something more than a “simple” Will.
Lawyers are occasionally guilty of speaking legal jargon that a non-lawyer has no idea what the lawyer is talking about. For example, an estate planning lawyer (or perhaps an estate planning website you found) may suggest that you execute a living will in addition to a will, health care proxy and power of attorney. You probably already know that a will is but may have no idea what a living will is.
If your loved one has passed away without leaving a Will, you will now find yourself in the murky area of Voluntary Estate Administration. If someone passes with a Will, there is a “probate” of that Will. If there is no Will, then a qualified person must petition the Surrogate’s Court to be appointed the Administrator of the Estate.
Joint bank accounts are frequently used by spouses for a number of reasons but are typically created so each spouse can write checks from the shared account to take care of living expenses. Joint accounts are tools of convenience, allowing for example one spouse to rely on the other to take care of the bills. Most joint accounts between spouses are also set up so the surviving spouse “inherits” the bank account when the other spouse dies, which is usually what they intended.
Perhaps you have seen commercials from personal injury law firms trying to convince you to call them immediately if you have been injured because your claim may be time-sensitive. While these firms are obviously trying to get your business, there is some truth in this type of statement. Virtually any claim you may have against an individual or entity has a “Statute of Limitations” attached to it, meaning the amount of time you have to commence a lawsuit before your claim is deemed time-barred.
Hopefully you never find yourself a party to a civil lawsuit, be it as a defendant or as a plaintiff, as such matters can be stressful, time-consuming and costly. There are of course occasions where lawsuits are unavoidable such as when you served with a summons and named as a defendant. On the other side of the coin, there may come where you are injured, be it personally and/or financially, and have no choice but to sue an individual or entity that you believed caused your injuries.
In the fall of 2014, my colleague Betsy wrote an informative blog regarding a recent U.S. Supreme Court decision that held that under federal law, an IRA that is inherited by an individual (i.e. the beneficiary) is not protected in bankruptcy.
While over 19 million Americans call New York State home, countless other non-residents own second homes in the state. Similarly, over 19 million Americans call Florida home but many non-resident retirees and snowbirds own vacation homes in the state to enjoy the warmer climate in the winter months.
Whether you own a second home in Florida or New York, you should be aware that owning a second home in another state will expose your estate and loved ones to additional costs and burdens when you pass away.
Countless individuals make gifts to charity every year not only to support their favorite philanthropic causes but to also take advantage of tax savings in the form of a deduction on their 1040 income tax return. As you may be well aware from conversations with your accountant or tax preparer, there is no similar income tax deduction for gifting to one’s children and loved ones. However, there are potential estate tax benefits for making such gifts that you may want to consider.
What is the “Gift Tax” Anyway?
Any direct or indirect transfer to an individual where full consideration (measured in money or money’s worth) is not received in return is considered a gift. All gifts are “taxable” unless they fall within one of the exceptions discussed below.