Estate Planning and Analysis

Estate Tax Overview

Recent Federal Changes
There have been a number of changes to the estate tax rules over the years. Effective in 2023, the federal gift and estate tax exemption is now up to $12.92 million per person ($25.840 million per couple). This essentially is a tax-free amount of assets that a person or couple can pass on during their lifetime or at death. For married couples, each person’s $12.92 million exemption is portable and can be transferred to the surviving spouse. In prior years, these exemption amounts were not portable and it was important for couples to separate assets and establish trusts to fully minimize federal estate taxes. While separating assets to minimize federal estate taxes may be less important today due to this legislation, many states still have inheritance taxes where separating assets and using trusts is still an effective strategy. We can analyze your estate tax situation and determine the most effective ways to minimize the tax to leave more assets to your desired beneficiaries.

Gifting Overview

Married U.S. citizen couples can give an unlimited amount of money to each other without a gift tax concern. For assets transferred to a non-spouse (ie. children and grandchildren), the government allows for a specific amount of money to pass free of gift tax. For most gifts, there are no income or gift taxes paid by the recipient or donor.

Annual Exclusion Gifting
In 2023, a person can transfer up to $17,000 per beneficiary without impacting their available $12.92 million asset exemption. This amount is called the “annual exclusion”. For example, a single person with two children can give up to $34,000 per year without affecting their asset exemption. A married couple with two children could give up to $68,000 per year. Often, in-laws and grandchildren are also included as gift recipients to maximize the amount of annual exclusion gifting to the next generation. It is important to note that any gifts that exceed this annual exclusion amount (up to $12.92 million) will not incur any out-of-pocket gift taxes. The excess gift will simply reduce the donor’s available asset exemption at death. Gift taxes will only be payable at a 40% flat tax rate if the total amount of lifetime gifts (not counting annual exclusion gifts) exceed $12.92 million. Our comprehensive cash flow and estate analysis will help you find out if gifting is affordable and if it is, we can determine the optimal level of gifting to accomplish your goals.

Estate Planning Documents and Use of Trusts

Proper estate planning documents can play a key role in not only ensuring a smooth transition of assets at death, but to provide for management of assets under certain lifetime contingencies, such as a disability. It is also imperative that your assets are owned properly, and the beneficiary designations named on your retirement accounts and insurance policies coincide with your documents. We can help you make sure that you have the appropriate estate plan given your overall financial situation, goals and family dynamics.

A will is a document that focuses on the distribution of assets that pass through Probate. It names an executor (a person who administers the estate) and names a guardian if you have minor children.

Durable Power of Attorney
If you are incapacitated and cannot manage your finances, a durable power of attorney names a person who can step in and help you pay bills, make gifts, etc.

Health Care Proxy
A health care proxy names a person who can make medical decisions on your behalf should you become incapacitated and cannot communicate your wishes.

Revocable Trusts
A revocable trust is the most common form of trust. It is a “holding tank” for money or properties that you wish to bypass probate, assuming you transfer ownership of the property to the trust during your lifetime. Aside from bypassing probate, revocable trusts serve many purposes including management of assets if you are incapacitated and helping the person take advantage of their available estate tax exemptions. Since a revocable trust is “revocable,” it can be changed at any time and the donor typically has full control over any asset placed in their revocable trust.

Irrevocable Trusts
Irrevocable trusts are “holding tanks” that the donor technically has no control over assets placed in the trust. Since the trust is “irrevocable,” it cannot be changed in the future. Irrevocable trusts are commonly used to shelter assets from estate taxes and nursing home costs. They also play an important role in the management and protection of assets for beneficiaries.

Estate Planning Techniques to minimize taxes

There are many different strategies to minimize estate taxes. Given your unique financial situation and family goals, certain strategies may be more appropriate than other strategies. We can help you understand the pros and cons of the different estate planning techniques.
Our comprehensive financial analysis is critical in helping us determine the true impact of implementing any given estate planning strategy. The goal for most people is to find the proper balance of minimizing taxes and assuring a financially secure retirement.
Some of the more commonly used techniques include the following:

  • Proper asset ownership to shelter your estate tax exemptions
  • Annual exclusion gifting
  • Gifting to 529 plans for children and grandchildren
  • Irrevocable life insurance trusts
  • Charitable giving
  • Family limited partnerships
  • Qualified personal residence trusts
  • Grantor retained income trusts

Planning for Special Needs

About 10% of our practice caters to families with special needs. Parents of children with special needs are generally concerned about the continuity of the child’s medical and financial needs in the future. In addition, they may have other children who do not have special needs and want to make sure that all of their children are treated equitably at their death. This can pose a challenge when the special needs child has a much greater need for future money than their siblings. If you have a loved one with special needs, we can help you structure your estate to ensure a smooth transition for the child with special needs and making sure their siblings feel equitably treated.

Supplemental (Special) Needs Trust
Supplemental needs trusts are created for the benefit of a special needs child with provisions that clearly address the medical, housing and financial needs of the child. These trusts will also have language that will make sure that the trust principal and income will not jeopardize the child’s ability to obtain government entitlement services such as Medicaid, Social Security income and housing services.