About nyestateomfmind

For the past decade, I have worked closely with individuals and families to prepare the right estate plan for their specific needs. My work has also included business succession planning, family charitable planning, estate and fiduciary litigation and estate administration.

The New York/Federal Estate Tax Divorce Becomes Permanent (for now)

In the final month of 2017, President Trump and the Republicans in Congress agreed upon a massive change to the federal tax system. Amongst the changes was significant increase to the federal estate, gift and generation skipping transfer tax exemptions. Beginning in 2018 and continuing through the end of 2025, each individual receives a $11.2 million exemption (adjusted annually for inflation) and each married couple receives a collective $22.4 million exemption. This leaves the vast majority of estates able to pass free of federal estate tax.

In New York, however, this change brought about an end to the hope of both tax professionals and clients alike that the New York state and federal exemptions would once again be equal. This hope has now been extinguished as New York’s exemption will remain $5.25 million through the end of 2018. On January 1, 2019, the exemption will be determined based on a base exemption of $ 5 million adjusted for inflation over the course of the last ten years. Furthermore, two major differences from the federal estate tax system will complicate New York estate planning even further.

First, under federal estate tax law, if one spouse dies leaving a portion of their exemption unused, the surviving spouse may ‘inherit’ the remaining exemption through the concept of portability. New York, on the other hand, does not recognize portability and without additional planning, the unused exemption would not be preserved. Secondly, under federal estate tax law, the taxable portion of an estate is the value of the assets above the decedent’s exemption. This is also true in New York unless your estate exceeds 5% of the exemption. Once an estate exceeds this amount, the entirety of the estate is taxable, not just the excess amount.

The New York/Federal Exemptions historically

For many years, New York conformed it’s estate tax exemption to the state death tax credit under the federal estate tax system. In 2001, this changed due to the tax legislation passed by President George W. Bush which increased the federal estate exemption over the course of the next decade leading to a temporary repeal in 2010. In order to preserve the revenue that it was receiving from estate taxes, New York and other states which had a state-specific estate tax decoupled from the federal system and set their own exemptions. In New York, the exemption remaining $1 million for well over a decade.

In 2014, Governor Andrew Cuomo enacted legislation by which the New York exemption would progressively grow in size over a period of five years. By 2019, the New York exemption was scheduled to be tied to the same formula by which the federal estate tax exemption was determined. This, it was hoped, would reduce the estate tax burden on many New York families while reduces the disparity between state and federal tax regimes.

Planning for the new New York/Federal disparity

 The large disparity between the two exemptions creates new complications and opportunities for New York residents with regard to their estate plans. Wills which utilized a mandatory credit shelter trust should be reviewed and changed to more flexible disclaimer trusts to give fiduciaries more room to determine how much and which tax to pay at a decedent’s death. Additionally, because New York does not have a state specific gift tax, New York residents with estates valued between the New York and Federal exemptions should consider gifting plans to lower their New York taxable estate and to avoid the estate tax cliff.

Gifting does not come without risks. For a taxable gift to be effective, the donor must live for three years after the gift is made. If they die in the interim, the gift is brought back into their estate for purposes of calculating their estate tax. In addition, given the partisan nature of the recent changes, it is not inconceivable that the current federal exemption may be repealed or lowered by a Democratic president and Congress. Finally, even if Republicans retain control over the presidency and Congress, the change to the estate tax will sunset. It is possible that any gifts made today may be subject to a future clawback by the IRS.

The Only Certainty Is Uncertainty.

 In the sixteen plus years since New York first decoupled from the federal estate tax system, the federal exemption has changed twelve times and the New York exemption has changed five times. There is no reason to believe that these changes will suddenly end at the federal or state level. The best way to ensure that your plan reflects these changes is to remain in contact with your estate planning and tax professionals.

Please contact info@levyestatelaw.com for more information.

Ten Year-End Tasks To Improve Your Estate Plan

The final month of 2017 will begin this Friday and with it, many will be making a mad dash to wrap up various projects that they started during the year. Finalizing things during the waning weeks of the year is complicated by other priorities including work and family celebrations, holidays and vacations. Even with so much on our plates at this time of year, there are some tasks which can be undertaken during December that will help maximize the effectiveness of your estate plan.

  1. Make annual gifts to friends and relatives. Each year, every individual can gift $14,000 individually to as many beneficiaries as they wish. A married couple can pool their gifting and give a collective $28,000 to their beneficiaries. This is a great way to reduce the size of your taxable estate while benefiting the people you care about without any tax consequences.

 

  1. Complete beneficiary designations on your paid on death assets. Life insurance, annuities and most retirement accounts allow owners to designate the beneficiaries of these assets to allow beneficiaries to claim assets without court intervention. Failure to designate a beneficiary often leaves a person’s estate as a beneficiary and then requires the formality of a full estate administration.

 

  1. Finalize your estate planning documents. If you’ve started working with an attorney and have yet to finalize your documents, finishing the process before the end of the year will provide you and your family with a sense of closure and security prior to the holidays. It will also leave you with one less goal to accomplish next year.

 

  1. Review your existing estate planning documents. Whether it’s been a year or ten, most people don’t keep the details of their estate plan front of mind for long after they’ve completed the process.   A review of your existing documents with or without your attorney’s help can help clarify if your current planning still makes sense with your current situation.

 

  1. Fund existing trusts. One of the biggest estate planning mistakes is unfortunately very common. When a client executes a trust, the work is only half done. Properly funding the trust, regardless of what type of trust it is, is what keeps a trust agreement from becoming nothing more than a very expensive piece of paper.

 

  1. Prepare Health Care Proxies and Durable Power of Attorneys. Preparing for disability/incapacity is a complicated and time consuming process. On the other hand, the basic documents, a health care proxy and a durable power of attorney, can be prepared relatively quickly and cheaply. Even if you have no other planning in place, having these documents prepare before year’s end is a no-brainer.

 

  1. Speaking with your fiduciaries. Executors, trustees and guardians all have great power and responsibility with regard to your family and your assets. Regular conversations with these important people helps to ensure that they remain the right choices for these roles. Timing these conversations for the end of the year can bring a year’s worth of perspective to these discussions.

 

  1. Discussing the basics of your estate plan with your children. As children grow into adults, exposing them to the specifics of your planning is a good way to prepare them for what to expect when you are gone. Although these are difficult discussions to have, giving your children the knowledge that you have planned for situations like disability and death ultimately can provide them with the security of knowing that things will be set up now to avoid conflict and surprises later.

 

  1. Revising or Creating a List of assets and accounts. It is my general recommendation to avoid listing accounts and specific assets in your estate documents if they are being bequeathed as part of a general gift. This is because the assets often change, get spent, sold or move to different institutions during a person’s lifetime. As an alternative, preparing a summary of the important assets, the location of the assets and other key information to keep alongside your estate planning documents provides a guide for your fiduciaries and beneficiaries to follow. By keeping it as an informal document, it allows you to frequently change it without the need to revise your estate planning documents.

 

  1. Schedule a consultation with an estate planning attorney. While it is difficult to get a new estate plan put together in a month, a consultation is a good first step towards completing an estate plan.   Starting now, and not leaving this for a new year’s task, will help avoid pushing the process down the road without any forward progress.

 

These tasks alone or collectively can provide further clarity and completeness to your estate plan. By completing these tasks, you can enter 2018 with a more secure and clear estate plan.

 

Please contact info@levyestatelaw.com for more information.

Estate Tax 2018-What We Know, What Trump Wants and What’s To Come

On Wednesday afternoon, after months of speculation, the Congressional Republicans released their and President Trump’s proposal for tax reform/cuts to begin as soon as 2018. Much of the general parameters of the plan have been known for months with few specifics being known. The proposal released on Wednesday didn’t add many specific although the contours of the proposal were now official. Not shockingly, a repeal of the federal estate tax was amongst the proposals presented.

With a formal bill not yet written and a strategy for passage still unclear, it is helpful to look at what the estate tax system-both federal and state-may look like next year depending on what Congress does and whether or not the estate tax factors into the eventual final bill.

Federal Estate Tax Exemption-A Tale of Two Possible Futures.

Currently, the Federal Estate Tax Exemption stands at $5.49 million per individual and a collective $10.98 million for married couples. Under the federal system, through the concept of portability, a surviving spouse may utilize any unused portion of their deceased spouse’s estate tax exemption. Since all assets pass to surviving spouses estate tax free (due to the federal marital deduction), a surviving spouse has great potential to transfer an eight-figure estate to their heirs free of estate tax.

Since 2010, the exemption has been increased annually as a factor of inflation. And although an official decision will not be made by the IRS until next month, the expectation is that the exemption will be increased to $5.6 million per person and $11.2 million per married couple. It is also projected that the federal gift tax exclusion will be increased from $14,000 per beneficiary per year to $15,000.

Under the Trump/Republican plan, the federal estate tax and the generation skipping transfer tax (GST tax) will be repealed. Beyond that, very few specifics are known. Will the repeal begin in 2018, be retroactive or phased in as it was when it was repealed in 2001? What will happen with capital gains treatment of inherited property? Since there will be no longer an estate tax, will property that previously received a step up in basis be given a favorable treatment at death and what, if any, limit on stepped up basis will there be?

Another notable omission from the plan is any mention of the federal gift tax. Given the reduction in revenue that a repeal of the estate tax will create, is it possible that the federal gift tax exemption will be reduced? Or will the system also be overhauled to deal with the reality of an estate tax federal tax system? The coming weeks and months may or may not tell the tale on this issue.

New York and other local State Estate Tax Exemptions.

 In New York, the outcome of where the Federal Estate Tax Exemption will land matters more over the next year than any time since 2000. In 2014, Governor Cuomo and the state legislature agreed to increase New York’s state exemption from $1 million to eventually re-connecting it with the applicable federal exemption. Currently and through December 31, 2018, the New York estate tax exemption is $5.25 million. On January 1, 2019, the exemption will be tied to the then in-effect Federal Estate Tax Exemption. What if there is no Federal Estate Tax Exemption? It is unclear as of now what New York would do, but it seems unlikely that New York would follow suit with a full repeal.

Our neighboring states have taken different tacts with regard to their state specific exemptions. Last year, New Jersey repealed their estate tax exemption starting January 1, 2018. They continue to have an inheritance tax for bequests to non-lineal family members and with a new governor entering office shortly after the New Year, there may be additional changes to their estate tax/inheritance tax system. Like New Jersey, Pennsylvania has only an inheritance tax, but only fully exempts bequests to surviving spouses and children under 21. Connecticut has an estate tax with a current exemption of $2 million.

Beyond 2018.

By this time next year, we will likely know what both the exemptions for both the federal and state specific estate tax systems will be. But, as with any change to a tax code, it may be many months if not years before we fully understand the ramifications of these changes.

Please contact info@levyestatelaw.com for more information.

When a ‘minor’ issue can become a Major Problem.

One of the primary concerns for families with minor children have with regard to their estate planning is the care, both personal and financial, of the minor children if both parents predecease the child before he or she reaches the age of majority. The appointment of a guardian (typically a relative or close friend) provides a level of comfort for parents who wish to be certain of who will take of their children if they are no longer around.

Relying on a guardianship appointment alone may not sufficiently protect your child from certain financial problems that are common with children who receive large sums of money at an early age. In New York, a child reaches the age of majority at 18. Unless the child consents to the continuation or appointment of a guardian, all monies and property held for their benefit must be released to them directly. In rare circumstances, a child can petition the Surrogate’s Court prior to reaching 18 if the appointed guardian is not fulfilling his or her responsibilities or the court finds guardianship to not be in the child’s best interest.

It is rare to find an 18 year old with sufficient financial maturity to handle the administration, investment and maintenance of large sums of money. It is for this reason that I strongly advocate establishing trusts for children under both last will and testaments and under lifetime trusts. The benefits are substantial and clear: first, by continuing to have a fiduciary (rather than the child) as the responsible party for the assets, the value of the assets have a reduced chance of being wasted or used for frivolous or harmful purposes.   Second, by retaining the assets in a trust and not in a child’s name, the assets can be shielded from potential creditors of the child.

Finally, using a trust gives the donor of the assets-the testator under a will or a grantor of a trust-the ability to structure the distributions and usage of the assets to best accommodate their wishes and the needs of the children beneficiaries. The donor is typically a parent or close relative and may have a better understanding of a child’s strengths and weaknesses when it comes to managing money.

There is no perfect solution that ensures that assets being inherited by or gifted to a child will not ultimately be wasted or abused. However, by relying on your own knowledge of a child rather than arbitrary deadlines, the chances of seeing the assets used for the intended purposes greatly increases.

 

Please contact info@levyestatelaw.com for more information.

The President has no Trust.

Following his election as the 45th President of the United States, President Trump made repeated claims that he would divest himself from his business assets to avoid any conflicts of interest. Despite numerous claims that conflicts of interest laws do not apply to a sitting president, in January, Trump finally revealed his plan to the world-he would transfer his business holdings to the Donald J. Trump Revocable Trust, a trust set up for his own personal benefit but controlled by his son Donald and Allen Weisselberg, the CFO of the Trump Organization, who were named as Trustees. This, he claimed, would allow him to remove any doubt with regard to any potential conflict between his acts as president and his business holdings.

Earlier this month, ProPublica published a report that in February, the terms of the Trust were changed to allow the President the ability to receive principal and income from the Trust at his request subject to the approval of the Trustees. While this appeared to be an about face from Trump, the truth of the matter is the choice to use a revocable trust as a means of divestiture was never a serious transfer of his assets and the control thereof.

For starters, a revocable trust is not a traditional trust under United States trust law. Typically, trusts are irrevocable and the person contributing property to a trust loses all direct control over the property. Additionally, in many states, the donor or grantor of a trust cannot also be a beneficiary of the trust. Finally, while not impossible, most trusts cannot be amended or changed without a court order.

A revocable trust has none of these restrictions. The grantor of the trust reserves the right to revoke the trust at any time. In most instances, a grantor of a revocable trust is also the main beneficiary of the trust. And while the trust agreement can put restrictions on the control and distribution of trust property, the grantor has the ability to amend the trust and remove and replace the trustees if they are not happy with how the trust is being administered.

The main restriction found in a revocable trust is that these powers typically disappear if the grantor becomes incapacitated or dies. The trust then becomes irrevocable and the grantor loses the power to revoke and amend. It is possible that the President’s trust could have included his time as president as a further triggering event to losing these powers. The certification of trust presented by the President indicates that he retained his right to revoke the trust, so it is clear he did not do that.

Revocable trusts are often used to ensure a client’s privacy, to protect a client’s assets if they become incapacitated and to reduce the time and cost of estate administration upon their death. The idea that such a trust could be used to create any sort of separation between the president and his assets ignores the fact that the rights retained by the President are not a bug, but a feature of these trusts.  Revocable trusts are trusts in name alone and cannot be used to properly separate the President or any other government official from the conflicts associated with their business holdings.

For more information on trusts, please contact info@levyestatelaw.com

Estate Tax Repeal Take 2? A look at the Federal and New York Estate Tax Systems Then and Now

During the rollout of his economic plan, Donald Trump announced his intention to push for a repeal of the federal estate tax. Trump claimed to have known many families who were “destroyed by the death tax.” If this proposal and the associated rhetoric sounds familiar, there is a reason for that: the proposal and rhetoric is identical to that of George W. Bush when he took over the presidency in 2001.

It is helpful then to compare where things stand today versus fifteen years ago to see if today’s estate tax environment is comparable to that of 2001:

Federal exemption, then and now. When President Bush took office, the federal estate tax exemption sat at $675,000 per individual or $1,350,000 per married couple. The maximum tax rate was 55%. Bush and Congress passed sweeping tax cuts once he entered the office including temporary repeal of the estate tax in 2010. By the time 2010 came along, both the Presidency and Congress had switched to the Democratic Party and in order to avoid a return to the exemptions of 2001, Congress and President Obama agreed upon two compromises.

First, in 2010, the estate tax was reinstated with an exemption of $5,000,000.00 and a maximum tax rate of 35%. Second, in 2012, as part of the fiscal cliff negotiations, the reinstated exemption of 2010 was made permanent with yearly adjustments for inflation and a maximum tax rate of 40%. In 2016, the exemption currently stands at $5,450,000.00 per individual or $10,900,000.00 per married couple.

Portability. The 2010 compromise also added a new concept known as portability to the federal estate tax system. Previously, if a married individual died leaving a portion of their estate tax exemption unclaimed, the remaining exemption was lost. The advent of portability changed this to allow a surviving spouse the ability to claim the remaining portion of their deceased spouse’s exemption by filing a federal estate tax return.

New York exemption, then and now. At the time of the enactment of the federal estate tax repeal, New York’s estate tax exemption was increased from $675,000 to $1,000,000.00. In addition, New York and other states decoupled from the federal estate tax system and continued to tax estates at or above their exemption amount. This led to many estates being subject to New York estate tax but not federal estate tax.

In 2014, Governor Andrew Cuomo enacted the first change to estate tax exemption in New York in over a decade. Through the end of 2018, the New York estate tax exemption would increase several times before being tied to the federal exemption starting in 2019. This change greatly reduced the number of New York estates subject to any estate tax liability.

The Tax Cliff. The changes to the New York estate tax system were not all beneficial to taxpayers. Beginning in 2014, estates valued at 5% or more of the applicable exemption would be subject to estate taxation on the entire value of the estate. Estates at or less than 5% of the exemption would continue to be taxed only on the value of the estate above the exemption.

This change created a further burden on large estates while alleviating smaller estates of any estate taxation. The New York system, unlike its federal counterpart, does not provide for the use of portability for any unused portion of a deceased spouse’s exemption. This continued discrepancy between the New York and federal systems requires individuals with estates at or near the exemption to be ever more vigilant about their planning.

Additional Changes. The changes to the exemptions and tax rates are not the only ways that the tax system has improved for taxpayers and their families. Along with increasing the federal estate tax exemption, the 2010 compromise also increased the federal gift exemption from $1,000,000 to $5,000,000 and subsequently the same amount as the federal estate tax exemption. This allows wealthy families to transfer highly appreciable property during their lifetime to their heirs.

Same sex married couples have also benefited from these changes as a result of the decision in Obergefell v. Hodges. With the federal estate tax marital deduction and exemptions now available to all married couples, even more taxpayers are able to protect their estates from taxation.

Then vs. Now. At the federal and New York levels, the past fifteen years have seen unprecedented growth in the amount of assets individuals can pass to their heirs estate tax free. The amount of estates owing any estate taxes have declined dramatically with only approximately .02% of estates being subject to federal estate tax.

In the eyes of the opponents of the estate tax, none of this matters. Their objections to this so-called “death tax” does not concern itself with these facts. But, regardless of one’s politics and beliefs, the reality of the estate tax system in the United States and New York is very different today than it was when we heard Donald Trump’s current policy views spoken by President Bush in 2001.

Please contact info@levyestatelaw.com for more information about your and your family’s estate planning and estate administration needs.

A Declaration of Interdependence

Last Monday, we celebrated the 240th anniversary of the signing of the Declaration of Independence, the document by which the United States of America was born.  By recognizing the need to break free from the control of England, the former colonists put forth the belief that only by gaining independence could they gain the unalienable rights of “Life, Liberty and the Pursuit of Happiness.”

Nearly two and half centuries later, the world has changed dramatically, but the desire for independence and the ability to chart our own course remain key values to Americans. Running parallel to this need for freedom is our history of finding great success by relying upon each other.  The motto “E Pluribus Unim” (out of many, one) reflects that this is also a core American value.

When preparing an estate plan, it is understandable to want to rely on one person or one advisor to ensure all your wishes and desires are fulfilled.  However, in most cases, it is preferable and useful to have multiple advisors across multiple professions working with you to provide you and your family with the security you wish for.  By working together, attorneys, accountants, financial and wealth advisors and other professionals can bring their specific expertise to the table and strengthen the other advisors’ abilities to help a client reach their goals.

Family members and friends also play a part in ensuring your estate plan fulfills its goals. In their capacities as fiduciaries or beneficiaries, these most important individuals can assist both the individual and their advisors during their lifetime and beyond.  Conversely, a disgruntled family member can cause great harm to the success of an estate plan.

In the end, each individual’s estate plan should reflect their specific wishes and intentions.  It is each individual’s right to plan their affairs as they see fit.  Utilizing the people and resources available to you is best way to achieve this goal.

For more information, please contact info@levyestatelaw.com.