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Estate Planning Outside of the Federal Estate Tax

For a large majority of Americans, the recent doubling of the federal estate tax exemption from $5 million to $10 million, adjusted for inflation annually, in the Tax Cuts and Jobs Act, will have no effect on their estate. It is important, however, to remember there are numerous reasons for estate planning outside of estate tax savings.  Those reasons include:

 

New York State Estate Tax

New York currently imposes an estate tax of 16% on estates over $5,250,000.  However, New York state has an “estate tax cliff” meaning if your estate exceeds the exemption amount by more than 5% your entire estate is subject to tax, not just the amount exceeding the exemption.  Additionally, unlike the federal government, New York does not allow the surviving spouse to use their deceased spouse’s unused estate tax exemption, referred to as portability.  Therefore, if your estate exceeds the New York state estate tax exemption amount then you will still need to do some estate planning to minimize New York estate tax.

Children

For people with minor children the primary concern is the appointment of a guardian should both parents pass away.  Without a Will, a court will be tasked with determining what is in your child’s best interest.  The next question for people with children, is at what age should children receive their inheritance from your estate.  Without a Will the inheritance of a minor child will be held in trust until that child reaches age 18.  Through estate planning people can decide at what age or ages their children will receive their inheritance, this can be in a lump sum at a certain age or parsed out over a number of years.  Some people even create lifetime trusts for their children, which may never distribute the trust principal to the child.  Lifetime trusts can protect the trust assets from a child’s future creditors or potential marital issues because, as long as the child has a co-Trustee, creditors will likely be unable to get at the trust assets and the lifetime trust will not be considered a marital asset distributable in a divorce.  Lastly, if you die intestate, meaning without a Will, your assets may not pass in the exact way you wish.  For example, if you have children from a previous marriage you may want to benefit them as well as your current spouse.  Through the use of a qualified terminal interest property trust, or QTIP trust, you can provide your spouse with the trust income for his or her life and ensure that the trust principal passes to your children.

 

Unmarried Couples

For people who choose not to marry, but who would still like to benefit their partner, estate planning is vital.  New York intestacy laws provide that all of your assets are distributed to your family and if you have no living family your assets will escheat to the state.

 

The Family Business

If you are the owner of a business it is essential to have a succession plan. Succession planning can provide for a smooth transition of your company from you to one or more of your children or a succession plan can instead involve entering a Buy/Sell agreement with a new or current partner.  Whichever way your business is passed, it is essential that the disposition of your business is done quickly and orderly after your passing so that the business does not lose the value that you created during your lifetime.

 

Health Care Proxy, Living Will and Durable Power of Attorney

An essential component of every complete estate plan is the execution of a Health Care Proxy, Living Will and Durable Power of Attorney.  Your Will disposes of your assets upon your passing, but these documents dictate how decisions shall be made while you are living but cannot no longer make decisions for yourself. A health care proxy names a person to make health care decisions for you in the event of incapacity.   A living will makes known your wishes regarding health care decisions.   A durable power of attorney appoints a person to act as your attorney-in-fact and execute financial transactions on your behalf.   These transactions can be as simple as day to day bill paying or as complex as advanced Medicaid planning.

 

The above factors are by no means an exhaustive list. Everyone has a unique situation and can benefit from at least one aspect of estate planning.  The estate planning attorneys at Twomey, Latham, Shea, Kelley, Dubin & Quartararo are available at your convenience to answer your questions, review your current estate plan to ensure it continues to meet your needs or to discuss the implementation of an estate or succession plan.