Federal estate tax and New York

Last December, Trump signed into law  the Tax Cuts and Jobs Act that took effect this past January. The main feature of the law is that prior to the law being enacted, the federal estate and gift tax exemption was $5.49 million. However, the Act increases the federal estate and gift tax exemption to $11.18 million or $22.36 million for married couples starting in 2018. It also increases the per person “generation-skipping transfer tax” exemption to approximately $11.18 million. Under the Act, the increased exemptions will remain in effect through 2025, after which they will return to the 2017 federal estate tax exemption.

What about New York? In 2017, New York State increased the tax exemption to $5,250,000 which will be in effect until the end of 2018. In 2019 the exemption will increase to over $5.6 million and will increase each year.

A common estate planning trick for married couples is to fund a trust with the maximum amount that can pass free of federal estate tax with the rest of the estate being sheltered by the unlimited marital deduction, resulting in no estate tax due on the death of a spouse. However, New York has decoupled its exemption from the federal exemption, and that forces couples to make a decision. If at death, the he or she wants to put the total amount they are able to pass free of federal estate tax into a trust they will incur a New York estate tax. Or, they can fund the trust with only the amount that can pass free of both New York and federal estate tax in order to not incur any estate tax on the first death. Although decoupling is not new to New York residents, the new laws significantly impact the way  New Yorkers decides to structure their estate plan.

With the passage of the new tax law and increased federal estate tax exemption, the cost of decoupling is bigger than ever.  An estate plan which directs the full amount that can pass free of federal estate tax into a trust will incur $1,258,800 in New York estate taxes in 2018.

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Estate planning: When only a will doesn’t cut it.

For many people, the most important document isn’t their will, it’s their IRA or 401(k).  That’s because many financial products, including retirement accounts and life insurance policies are legal contracts and override anything in your will.

So, no matter what your will says, the payouts from these products will go to the beneficiaries you designated when you filled out the forms, even if that was decades ago. That’s why it is important that you review beneficiaries regularly and choose contingent beneficiaries as backups, just in case. For example, you probably don’t want any of your estate to go to a former spouse so you need to make sure you update any documents that name them as a beneficiary.

For most people this should be enough, but for for those substantial assets it might be be best to set up a trust(s). By doing this you can exercise more control, minimize taxes and avoid potential challenges by heirs.

The best part of a trust is they don’t go through probate and are not public record, making the settling of an estate less complicated and less prone to legal challenges. Of course you will need to contact an attorney to decide what type of trust is best or you.

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Power of attorney, living wills & end of life

End-of-life issues can be extremely complex, and many people avoid making decisions about how such issues will be handled because it can be an uncomfortable and difficult subject to address. However, it is crucial that you do spend time thinking about how you want your final days to play out, both for your own personal comfort and for the well-being of your loved ones. At the very least, strongly consider making a living will and determining who you want to grant a durable power of attorney for healthcare decisions.

The Living Will

living will is a document that sets forth what to do, and what not to do, if you are incapacitated and unable to make those decisions. This could be because you are in a coma, suffered a debilitating injury, or because you have become seriously mentally incapacitated. Here are some of the most basic considerations to account for in your living will:

  • Life-Prolonging Medical Care: Your living will should state whether you want to receive life-prolonging treatments at the end of your life. Typical treatments include blood transfusions, respirators, dialysis, drug treatment and surgery.
  • Do Not Resuscitate (DNR) Directives: In conjunction with directives about whether you want to receive life-prolonging medical care, most living wills will state whether or not you want to be resuscitated (CPR) at the end of your life. It is advisable to let your doctor and local hospital know about your DNR decisions and, if you do not want paramedics to try to resuscitate you, to wear a Medic Alert bracelet, anklet or necklace with those instructions.
  • Life-Prolonging Food and Water: Often, if someone is comatose or seriously injured, they will only be able to survive through the external administration of food and water. When such treatment is stopped, the patient will die naturally of dehydration and medical professionals will typically apply medication to make such a passing comfortable. You should specify whether you want to receive food and water, under what conditions and timelines you would like to receive such treatment and when to stop it.
  • Pain Management: Even if you decide you want to let death occur naturally, without intervening care, it does not mean you have to die with pain. Now commonly called comfort care or palliative care, the goal of such care is to emphasize qualify of life and dignity by keeping the patient comfortable and free of pain until they pass. Specify in your living will if you want doctors to emphasize pain management at the end of your life.

Need a Living Will or Durable Power of Attorney? An Estate Planning Attorney Can Help

Imagine suffering from a massive stroke, resulting in the inability to move your body or even speak, and thus unable to convey your wishes to doctors or other caretakers. That is what living wills and powers of attorney are meant to remedy. But it’s important to get ahead of the curve while you’re healthy and lucid. Learn more about your health care and end-of-life legal options by speaking with an estate planning attorney near you today.

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Estate planning without politics, protecting your wealth

Changing legislation and tax laws can affect your estate planning but there are some estate  planning issues that remain the same regardless of those changes.

The first is making sue you update your health care documents and will(s). Make sure the people named in those documents are still the people you want named in those documents. Some things to think about are power of attorney, trustees, has your relationship changed with anyone name in your documents?

For example, if your power of attorney has moved across the country you might want to designate a new one closer to home.

Setting up new trusts

You can set up trusts for your kids and grandchildren. While exemptions have changed over the years, the gifting exemption has stayed relatively constant. By setting up these trusts you can avoid gifting taxes.

Sell off assets

You can sell of the family business, real estate and other assets and place the proceeds in a trust. A family business is along term investment so if you sell it off and place the process in a trust it will provide economic security and prevent it from any local state, estate taxes.

 

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Talk about dying

We’ve mentioned it before but many people delay estate planning because they don’t want to talk about death, their own specifically. But it has to be done. By not discussing it you can leave much uneeded stress for those you leave behind.

Getting your estate plans in order doesn’t have to be complicated. Here are some common questions:

  • If you wind up on life support, o you want to remain on it or have someone pull the plug?
  • Who do you want to carry out your last wishes. Who will be your executor?
  • How do you want your assets distributed?

Main documents

Power of Attorney for healthcare: Who will make decisions for yo if you can’t?

A living will; In some states this is called an advanced medical directive. This is for end-of-life decisions, like life support.

Beneficiaries

It is very common for people to forget to update their beneficiaries on various forms. This is most important if you’ve remarried. For example, chances are you don’t want to leave your 401(k) to your ex-spouse.

These are just a few of the things to remember when estate planning. Contact a credible estate professional who will be able to help you with the details and with anything we haven’t mentioned here.

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