The New York Times published a story this weekend on the continued uncertainty regarding the gift and estate tax and the questions it raises for many families. As each New York estate planning lawyer at our firm explains to local residents, the current tax situation is in flux, requiring many different considerations when engaging in estate planning. As it now stands, residents can each give up to $5.12 million tax free and then pay a 35% tax rate on any gift above that amount. The tax-free amount will drop and tax rate rise at the end of the year without Congressional action.
The uncertainty about the future of the tax details present very obvious challenges to many families. Giving away money to heirs now means reducing an eventual tax bill down the road. However, there are many questions about whether couples will have enough money to live on themselves after giving large sums to others. Obviously these considerations all depend on the value of the family estate. In general, only comparatively wealthy families are impacted by these issues. But for those families who are “on the cusp” and stand to pay more in taxes when the changes take effect, tough decisions will need to be made in the next six months.
One consideration beyond basic tax savings for estate planning purposes is the amount the any money passed on might grow over the years. For example, if a couple gave their child $5 million to take advantage of the favorable exemption, the gift could grow to nearly $30 million in about 30 years based on reasonable return rates.
Also, if one decides to give a gift, it is important to structure the gift in the most beneficial way. The best strategies usually protect the money from creditors while taking advantage of ways to multiply the gift. At times it might be appropriate to transfer a home or other real estate instead of liquid assets. However, these transactions must be done carefully to ensure they work exactly as desired without unintended consequences down the road.
Whether or not the potential change in the estate tax may affect you and your family, it is important to visit with a New York estate planning attorney to either create or update a plan when major tax changes tax place. A professional eye is crucial to explaining how legal changes affect your plan and whether or not alterations are needed to ensure the plan works as desired.
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