Articles Posted in Trusts

Passing on wealth to subsequent generations is a crucial part of New York elder law estate planning. At times, giving assets to others as a gift may be an important part of that strategy. While giving a gift may seem like a straight-forward step, in the overall estate planning process it comes with various complications. Tax consequences are at the heart of gifting, and so it is vital to understand how gifts fit into an overall asset transfer plan.

Giving gifts to others is one helpful way to lower a taxable estate. After all, if assets are given away while one is still alive then the total value of one’s estate at death will be lower leading to a smaller tax burden. If an individual planned on giving the asset away at death anyway, why not give it away while alive to save on taxes.

However, it is not necessarily that easy. For one thing, there are limits to what can be given as a gift tax-free each year. Under current law, transfers up to $13,000 per year per person are tax-free. Married couples can pool their exemption and give $26,000 to a person each year without paying taxes. Over a lifetime, the gift tax exemption is connected to the estate tax exemption. Right now the lifetime exemption level is $5.12 million. In other words, currently an individual can give away $5.12 million total without paying taxes while alive and the total amount given away will be applied to the estate tax exemption level at death for estate tax purposes.

One important part of the elder law estate planning process involves working out inheritance details. This comes with unique concerns for each family as various assets have different meanings for each individual, far beyond their market-value. Accounting for these emotional attachments is a delicate process that should not be done hastily. For example, one valuable that may present unique inheritance challenges are collections. Our New York estate planning lawyers appreciate that many residents have spent years building collections–from holiday villages and marbles to art–and have strong feelings about how they’d like to see the valuables handled after they are gone. A recent story in The Ledger argues that planning is paramount.

Collections, like other art and antique valuables, can present somewhat complex inheritance concerns. Large collections can be hard to physically manage, have difficult value estimates, and still may have tax implications. On top of all of that, collections are often laden with emotional value–some family members may love the collections, others may not. But it may not even be as simple as passing it on to one who cares for the objects. Some children may have no desire for the objects beforehand but may become emotionally attached after their parent’s passing because of the way that the collections helps them remember their loved one. In this way, family fights over what to do with collections–particularly large ones that are hard to manage–can be common.

For local residents, avoiding the potential inheritance mess comes down to one thing: have a specific New York inheritance plan in place. The planning process will involve asking tough questions about the best options for the future.

NuWire News published an interesting blog post last week that runs down a few ways that community members can use estate planning techniques to protect assets in “uncertain times.” Of course, our New York estate planning lawyers realize that uncertainty exists at all times, because no one knows for sure what tomorrow might bring. However, there are always some circumstances when future financial trouble seems particularly likely–such as when one might need long-term care either at home or a long-term care facility. The article authors note that it is always beneficial to shield assets before they become a target, otherwise, depending on the circumstances, there are a range of penalties that may attached to the conveyance. For example, when it comes to applying for New York Medicaid, it is vital that asset transfers be made at least five years before applying. Strategies exist to protect assets even when on the nursing home doorstep (without five years to wait), but there is much more than can be done the earlier one takes the time to plan for these issues.

Outside of the long-term care context, there is similar benefit from protecting assets well ahead of time, before they may be targeted by a creditor. The article discusses ten different techniques that may be applicable, depending on one’s circumstances. For example, the story discusses spousal gifting trusts. These are special trusts (also known as irrevocable grantor trusts) that allow married couples to protect assets from creditors and estate taxes while still retaining control and use of the assets.

Obviously insurance considerations are also important for protecting assets in uncertain times. After all, insurance is all about having security in the face of potential problems down the road. Long-term care insurance is clearly helpful to account for senior care costs. Unfortunately, that particular insurance is often out of reach for middle class community members. However, even basic life insurance should not be forgotten when thinking about estate plans. For younger families with children life insurance provides security in the case of untimely death. For wealthier families the insurance can also be important to protect assets from estate taxes.