Estate Taxes
What is the Federal Estate and Gift Tax?
There are two basic Federal Estate and Gift Tax principles of which you should be aware.
The first principle is that an unlimited amount of property may be left to a surviving spouse without incurring any federal estate and gift tax. This is known as the "unlimited marital deduction." However, on the surviving spouse's death, the property left in the surviving spouse's estate will be subject to federal estate and gift taxation. Therefore, with the unlimited marital deduction, estate tax is not avoided but rather delayed until the death of the surviving spouse.
The following information is updated for 2024. Please contact our law offices to discuss your related concerns.
The second principle is that upon death each individual is allowed to pass up to $13.61 million per individual (a combined $27.22 million for a married couple) (as of January 1, 2024) free of the federal estate tax. This is known as the "federal estate tax exclusion" or "estate tax exemption." However, it's important to note that this higher exemption amount is set to sunset at the end of 2025, after which the exclusion amount is scheduled to revert to approximately $5 million, adjusted for inflation, unless Congress takes action to extend or modify the current law. Additionally, New York imposes a state estate tax on property exceeding $6,940,000 (in 2024). Each individual is also allowed to gift up to $13.61 million during their lifetime without incurring a gift tax, and up to $17,000 per donee ($34,000 per married couple) annually without incurring a gift tax. The $13.61 million lifetime exemption is deducted at your passing from the federal estate tax exemption.
Estate tax rates vary each year, but they can be very high, reaching up to 40% of the value of your property. This is in addition to the New York state estate tax, which is capped at around 16% (and is levied on any estate over $6,940,000).
If the first spouse to die leaves all of his or her assets to the surviving spouse, that first spouse to die will have lost the benefit of the applicable exclusion amount. A simple Will that leaves the estate to the surviving spouse may, therefore, unnecessarily cause your estate to be subject to federal and New York State estate taxation.
Proper estate planning can reduce or eliminate the amount of estate taxes your estate will owe Uncle Sam so that you can leave more of your hard-earned assets to your loved ones.
Wills & Strategic Planning
How can Wills be employed in strategic Estate Planning?
One of the most effective ways to utilize both tax benefits (i.e., the unlimited marital deduction and the $13,610,000 estate tax applicable exclusion amount) is to have a Trust created in your Will (the "Credit Shelter Trust") to be funded with an amount up to the estate tax applicable exclusion amount of $13,610,000 (in 2024). This Credit Shelter Trust will not be subject to federal estate taxation in the first spouse's estate, nor will it be subject to federal estate taxation in the surviving spouse's estate when he or she dies, even if the surviving spouse is a beneficiary of the Credit Shelter Trust.Any excess assets can pass without estate tax to the surviving spouse due to the unlimited marital deduction.
By properly utilizing Wills with a Credit Shelter Trust and a marital deduction provision, a husband and wife can transfer over $27 million (in 2024) to family without incurring any federal estate and gift tax in either estate.
Given the impending sunset of the current estate tax exemption in 2025, it is crucial to review and possibly update your estate plan to ensure it aligns with your long-term goals and the changing tax landscape.
Life Insurance Trust
Are life insurance proceeds taxable?
Yes! Although life insurance proceeds are received income tax free, they are includable in your estate and are sub-ject to estate taxation. One way to avoid this problem is to establish an Irrevocable Life Insurance Trust ("ILIT"). An ILIT will effectively reduce the size of your estate and achieve estate tax savings.Elder Law
Q: I own a home. Am I eligible for Medicaid?
Depending on your other assets and monthly income, under the current New York law, a homeowner is eligible for Medicaid if his equity in the home does not exceed $1,071,000. However, according to New York law, Medicaid must recover the cost of your care from your home after you pass away. In other words, before your home can pass to your beneficiaries, they will need to pay back Medicaid whatever Medicaid had spent on your care. If your beneficiaries do not have the money, they will need to sell your home. Let's take a look at an example:Roza, a widow, has been using Medicaid since 2002, and until her death in 2024. Medicaid paid for Roza's home attendant, adult daycare, surgeries, doctors' visits, and all medicine. By the time that she passed away in 2024, Medicaid spent $500,000 on Roza. Roza's only asset was her house, worth $600,000, with no mortgage. In her will, Roza left her house to her 5 children. However, as soon as Roza died, Medicaid placed a recovery action on the house. Roza's children were forced to sell the house for $600,000 and pay Medicaid $500,000 from the proceeds. Only $100,000 was left for Roza's children.
Q: Is there anything I can do to prevent Medicaid from placing a lien on my home?
Yes. It is sometimes possible to transfer your home to a trust or to a child and out of Medicaid's reach. Please consider tax implications before engaging in any transfers! Other times, however, it may be possible to save only a half of the home's value. Call our offices today for a consultation.Q. How does putting my home into a trust work? Who will own the home, and what will be my rights?
Transferring your home to a trust means that the trust will own the home, not you. A properly drafted trust will allow you to live in the home until your demise, will make sure that the home is paid for, and will preserve all tax benefits and deductions that you received when you were the owner of the property. When you pass away, your home will be transferred to your beneficiaries.A properly drafted trust will save the home for your children when you pass away. Also, if you do not qualify for Medicaid because your equity in your home exceeds $1,071,000, or if you own multiple properties, placing your home/properties in a medicaid asset protection trust will allow you to become Medicaid-eligible. Transferring your home to a trust (as opposed to transfer-ring it to a family member) can allow for significant tax savings for your beneficiaries. In addition, of the major advantaged to placing your home in a trust is the avoidance of probate; your family won't have to go through this expensive and lengthy court process after you pass away if your home is in a properly constructed trust.
