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2016 Estate Tax Planning Updates
April 1, 2016

Effective estate planning may reduce estate taxes, which will benefit you and your family financially. In the face of ever-changing tax laws, there is growing concern about how to best protect assets and secure them for future generations.

Anticipating your potential estate tax liability is a great place to start planning.  Estate taxes are due within nine months after the date of death. Therefore, advance planning is key to addressing tax liability.

Estate Tax Exemptions: The Federal estate tax exemption for 2016 will be $5,450,000.00 for decedents dying after January 1, 2016, with future adjustments for inflation.

The New York State estate tax exemption will be increasing to $4,187,500.00 for decedents dying after April 1, 2016 and before April 1, 2017.

For deaths as of April 1, 2017 and before January 1, 2019, the NYS estate tax exemption will be $5,250,000.00.  Beginning on January 1, 2019 and later, the NYS estate tax exemption will be linked to the Federal estate tax exemption

Below is a brief overview of a few estate planning techniques that may shield assets from future estate tax liability:

Last Will and Testament with Disclaimer (credit shelter trust) provisions: This technique provides a married couple the opportunity to utilize estate tax exemptions of each spouse while giving the surviving spouse the opportunity to elect how much he/she shall receive from the deceased spouse’s estate. Any assets disclaimed or renounced by the surviving spouse are held in trust for the benefit of the surviving spouse. The trust assets are distributed to the ultimate beneficiaries only upon the death of the surviving spouse. The use of a Disclaimer Will may result in significant estate tax savings.

Annual Gift Tax Exclusion:   One of the simplest ways to reduce the size of your estate would be to begin making annual gift tax exclusion gifts. An annual exclusion from gift taxes applies to each person to whom you make a gift. In 2016, you will be able to gift up to $14,000 each to any number of individuals without those gifts being taxable.

 Benefits:

  • Allows you an opportunity to reduce the size of your taxable estate.
  • No gift tax returns are required if the gifts are $14,000 or less each year.
  • You can make these gifts each year, thereby dramatically reducing the size of your estate.
  • Receipt of the gift is not taxable to the recipient (unless the item gifted was a tax-deferred asset).

Payment of Tuition and Medical Expenses:  Tuition payments made directly to a medical or educational institution are not taxable gifts. The payment must be made directly to the medical or educational institution providing the services. Please note that the exclusion covers tuition payments but not books, supplies, board and dorm fees.

Benefits:

  • Allows you an opportunity to reduce the size of your taxable estate.
  • Allows you an opportunity to make additional gifts over and above the annual gift tax exclusion.
  • This unlimited exclusion can be used for all levels of education.
  • This exclusion is permitted for tuition expenses of full-time or part-time students.

Irrevocable Life Insurance Trust:  A life insurance trust is a vehicle by which the grantor

gifts money to the trust and the trust, in turn, buys a life insurance policy on the life of the grantor. When the grantor dies, the life insurance proceeds are paid to the trust and distributed to the beneficiaries designated within the trust. This is a good wealth replacement tool to offset projected estate taxes to be paid.

 Benefits:

  • Provides a liquid pool of funds to pay estate taxes, which are due within nine months of date of death.
  • The value of the life insurance policy is not included in the grantor’s estate because it was not owned by the grantor.

These are just of few of the available estate planning techniques. In estate planning, timing is critical for the proper protection of your assets to ensure security for future generations and starting sooner rather than later is most important. If you have any questions about the above material, or wish to speak to an attorney, please contact HoganWillig at (716)636-7600. HoganWillig is located at 2410 North Forest Road in Amherst, New York 14068, with additional offices in Buffalo, Lancaster, Lockport, and Ellicottville.

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