Main Menu

HoganWillig Blog

Estate Planning/Asset & Wealth Preservation
By Linda Grear on December 13, 2013

As 2013 comes to a close, have you made your New Year’s resolution yet? For many of us, estate planning is something we realize we should do, but somehow manage to keep postponing. With this in mind, you consider what estate planning is really all about. In essence, estate planning is about managing and protecting your assets during your lifetime and controlling distribution following your death so you may leave a legacy for your loved ones.

Effective estate planning may reduce estate taxes, which will benefit you and your family financially. In the face of ever-changing tax and Medicaid laws, there is growing concern about how to best protect assets and secure them for future generations. Time pressures, as well as issues confronting our own mortality, make many of us reluctant to deal with these matters. However, in estate planning, timing can be critical.

Anticipating your potential estate tax liability is a great place to start planning. The estate exemption equivalent for New York State residents is currently $1 million. The first $1 million of assets are exempt from NYS estate tax and any amounts over $1 million will be subject to NYS estate tax. Estate taxes are due within nine months after the date of death. Therefore, advance planning is key to address the tax liability.

For the year 2014, the Federal estate tax exemption will be $5,340,000. Any assets over that threshold will be subject to Federal estate taxes.

Below is a brief overview of the various trusts and estate planning techniques that may potentially shield your 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 the federal 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 2014, 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.

Education/General Purpose Living Trust: This is a lifetime trust which allows a parent or grandparent to establish a trust to be used towards education, training and/or the general welfare of the beneficiary. A person can specify the purposes for which the assets are used, as well as utilize the $14,000 annual gift tax exclusion amount.

The above items 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 and Lockport.

RSS RSS Feed

Categories

Back to Page