An Estate Planner’s Guide To Gifting

For most people, the terms gift or gifting brings to mind holidays, birthdays and other celebratory occasions. In the context of estate planning, making a gift or entering into gifting plan is a powerful tool to provide a benefit to family members, charities and other beneficiaries while also creating a tax benefit to the donor or giver of the gift. And while the intention behind giving a gift is similar to giving holiday and birthday gifts, the benefits and risks are much more significant.

Here is an introductory guide to gifting as part of your estate plan:

1.  What is a gift? When discussing gift planning, the term gift is used to describe any gratuitous transfer during a donor’s lifetime. Transfers made for consideration or some form of compensation is not treated as gifts for tax purposes (although the IRS may claim a partial gift is made if the consideration is insufficient). Transfers made at a donor’s death are also not considered gifts for purposes of this discussion.

2.  When is tax potentially due on a gift made by a donor? Under federal tax law, each individual has two distinct exemptions for purposes of making gifts. First, each individual may gift up to $14,000 to as many recipients or donees as they wish each year. Married couples can collectively gift up to $28,000 to each donee each year without any gift tax applying.

If an individual or married couple exceeds their annual exclusion amount in any                 given year, the excess is then deducted from their lifetime gift exemption.                         Currently, the lifetime exemption is $5.43 million with a maximum tax rate of 40%.             The lifetime exemption is tied to the federal estate tax exemption, so use of your               lifetime gift tax exemption will reduce the amount that can pass tax-free at your                 death.

3. Are transfers to all donees potentially subject to taxation? No. Transfers from one spouse to another spouse are exempt from all gift tax. This is helpful in planning the estates of married couples with uneven estates. The spouse with a larger estate can gift a portion of their estate during their lifetime to their spouse with no gift tax consequences and potentially large estate tax savings. However, transfers between spouses, like all transfers, are subject to the three-year look-back rule that will be discussed later in this article.

4. What is cost basis and how does it relate to gift planning? When property is transferred, the new owner of the property receives a cost basis that will be used to calculate capital gains when the property is later sold. Depending on when the property is transferred and how it is transferred, the calculation of the cost basis varies. Property that is purchased for consideration will have a cost basis equal to the sale price of that property.   For gratuitous transfers, the cost basis will either be carried over from the previous owner or stepped up to the fair market value of the property at the time it is transferred. Property that is inherited generally receives a stepped up basis to the date of death (or alternative valuation date) value. This is a significant benefit to those who sell inherited property shortly after a loved one’s death.

Property that is transferred by gift will typically carryover the basis of the donor. If the          property has appreciated since its purchase or if the property is likely to appreciate            after the transfer, the donee may be left with a significant capital gains tax upon their          sale of the property.

5. What gifting pitfalls should I avoid? Gifting property comes with certain common pitfalls that should be avoided if possible, namely:

Creating joint ownership is a gift.   It is not uncommon for older individuals to add a           child or sibling to their bank accounts and/or real property deeds. However, many             do not realize that adding someone’s name to their property ownership actually gifts         a portion of their assets to that person. In addition to unintentionally making a gift,             adding a child or another loved one to a real estate deed will cause the donee to               receive the donor’s cost basis and lose out on the potential stepped up basis in the           property if it was transferred at the donor’s death.

Transfers made within three years of a donor’s death. If a donor is attempting to               reduce their taxable estate, making a gift of property is one of the best ways to                 actively reduce their estate value. However, any transfer made within the three years         prior to a donor’s death will be included in the calculation of the donor’s taxable                 estate.

Transfers made to qualify for Medicaid. Older individuals often consider gifting as a           means to qualify for Medicaid. In New York, Medicaid can be applied for if services           are needed in the home or community (community Medicaid) or if a person needs to         move into a nursing home (nursing home Medicaid). For the former, Medicaid will               begin paying once a person reaches the appropriate income and asset limits                     regardless of when the transfer is made. For the former, however, any transfers                 made within five years of the application will be counted against the applicant. The             total amount of gifts will be divided by the current average cost of a nursing home in         the applicant’s county and the sum will be the amount of months the applicant will             have to self pay before Medicaid will cover their nursing home expenses.

Gift planning comes with many benefits and pitfalls that require careful consideration. By working with the proper advisors, you can maximize the value of your gifts to your beneficiaries and to yourself.

Please contact for more information.

The State of New York Estate of Mind

For those who have been actively reading this blog over the past two years, you have likely noticed that I have not posted new content since this past July.  


There are many reasons for this inactivity, but overall, it comes down to time.  Time is something that is always in limited supply and over the past few months, time is something I have simply been in short supply of.  Because of this, some things have fallen down the priority list and one of them is this blog.


With that said, this blog and the importance of keeping those who read it educated and informed on the area of estate planning and estate administration remains incredibly important to me.  A lack of time does not change that and there are several posts that I have been planning and will tackle in the coming weeks.  


On November 25th, the two year anniversary of this blog, I will return to a regular schedule of updating this blog on a biweekly basis.   If the need or the ability to update it more frequently, I will certainly do so.


Thank you all for your support and understanding.  Most importantly, thank you for reading!

Protecting Their Assets, Preserving Your Planning: Why Estate Planning Is A Key Tool For Other Advisors

The question of why an individual or a family needs an estate plan is often asked and answered in a typical fashion.  Issues regarding proper distribution, the minimization of taxes, who controls assets and cares for children and how a person’s assets and family are protected from disability and incapacity are always part of my answer when it comes to stressing the importance of estate planning.

An additional concern that I raise is important not only to individuals who I work with to prepare estate plans, but also to the other advisors they work with.  Estate planning provides a prophylactic veil over the work of other advisors to ensure that their work is not compromised.  Many advisors recognize the importance of an estate plan to their specific planning and understand the consequences of their clients’ failure to plan.

Some examples of advisors who benefit from their clients’ establishing estate plans include (but are not limited to):

Financial Planners/Investment Advisors-Financial plans and investment portfolios are created with specific goals in mind and allocations based on the advisor’s strategy to achieve those goals.   Without an estate plan, a portfolio may be divided or distributed to persons that were not intended by the client and the advisors.  In addition, without a plan to delay, reduce or eliminate estate taxes or, alternatively, a way to pay for estate taxes, a portion of a portfolio may have to be liquidated prematurely.

Life Insurance Advisors-Life Insurance can be a great source of liquidity when someone dies since the proceeds of the policy will typically be paid prior to any estate taxes being due.   However, without consideration of a person’s assets, life insurance may create an estate tax where none would be due otherwise.  By working with an estate planning attorney to purchase or assign a life insurance policy to a trust, the full value of the death benefit can pass to the intended beneficiaries estate tax free.

Accountants-With many accountants serving as the “quarterback” for their clients over planning, having an estate plan in place ensures that the problems improper distributions or excess taxation harm their clients.  Some accountants will be responsible for the estate, gift and generation skipping transfer (GST) tax returns of theirs clients as well as fiduciary income tax returns for trusts and estates.  Having an estate plan in place makes the tax preparer’s job easier and less complicated.

Other Attorneys-Attorneys who practice in areas such as family, matrimonial and tax law will often be aware of the trusts and estates related issues that may complicate their work.   Real Estate and Corporate attorneys can also benefit from ensuring that their clients’ work with them is not compromised by estate related issues.   In some litigation matters,  having an estate plan in place can expedite the commencement or settlement of a lawsuit with a sick or deceased client.

In a similar vein, estate planning attorneys rely on our clients’ other advisors to help ensure the best results possible.  Advisors working together for the benefit a client enhances the client’s planning and the advisor’s reputation with the client.

Please contact for more information.

The New Normal-Estate Planning in 2013 and Beyond

Since 1997, the federal estate tax exemption and maximum tax rate have changed every year but three.   The exemption has changed eleven times; the maximum rate has changed eight times.  Many of these changes have been due to the temporary nature of the tax legislation that Congress have passed and each change came with a specific end date in mind.  With each change, estate planning attorneys have been forced to speculate as to where the exemptions and rates would end up after the expiration date of each new law.

But, with the passage of the Tax Relief Act of 2012, it appears this consistent uncertainty is coming to an end.  Amongst the many revenue related changes made permanent by this law were permanent extensions of the estate, gift and generation skipping transfer (GST) tax exemptions enacted in 2010.  Each exemption will be adjusted for inflation annually and it is estimated that the 2013 exemption will be $5.25 million.

On the tax rate side, the maximum rate for these three transfer taxes was increased from 35% to 40%.  In addition, the concept known as portability-the ability of surviving spouse to utilize the unused portion of their deceased spouse’s exemption-was also made a permanent part of the estate tax law.  This is a major benefit to couples where one spouse has more wealth than the other.

Beyond the Tax Relief Act, the annual federal gift tax exclusion was increased from $13,000 per beneficiary to $14,000.  Coupled with the extension of the lifetime gift tax exemption, this change will allow for further tax-free lifetime gifting.

The changes at the federal level were not matched by a corresponding change to local state estate tax law.  In the three states that make up the tri-state area, the state estate tax exemptions remain low (the maximum tax rates are significantly lower than the federal rates).  Connecticut ($2 million), New Jersey ($675,000) and New York ($1 million) residents will still need to plan their estates to delay, minimize and possibly eliminate their exposure to state level estate taxes even if their estates are well below the federal exemption amounts

The new certainty to federal transfer tax law does not mean we will not see further changes over the next year.  With the Supreme Court scheduled to determine the constitutionality of the Defense of Marriage Act this summer, same sex married couples may see their estate planning options increase if the court strikes down the law.  Furthermore, it is clear the President Obama will seek to find additional revenue to help balance the current budget deficit and cut our federal debt.  In past budgets, he has indicated a willingness to curb popular estate planning tools such as valuation discounts and complex trusts like GRATs and dynasty trusts to produce revenue.  Whether this will be able to pass a Republican controlled House of Representatives remains unclear if not incredibly unlikely.

Regardless of any future changes, the Tax Relief Act of 2012 has allowed estate planners to shift their focus from predicting where the transfer tax exemptions and rates will end up to simply providing our clients with the best possible advice.  For that reason alone, the Act is a tremendous help to taxpayers and planners alike.

Please contact for more information on 2013 estate planning.

Giving While You Can: The 2012 Gift Tax Planning Opportunity-Part II Best Fits For “Supersize” Gifts

As the window for making large-scale gifts shrinks each day, many individuals and families will be encouraged by their attorneys and other advisers to consider taking advantage of the 2012 Gift Tax Planning Opportunity.  While this unique event could be a windfall for many people, there are certain situations where utilizing the current gift tax exemption and gift tax rates are most beneficial to the donors.

Below is a non-exhaustive list of some of the ‘best fits’ for making a 2012 Gift:

1)    Individuals with a taxable estate at or above the current Federal Estate Tax Exemption-The current federal estate tax exemption, as with the gift tax exemption, is $5.12 million.  And just as the gift tax exemption will expire on December 31st, the federal estate tax exemption will reduce to $1 million 2013.

Given the likelihood that the estate tax exemption will be reduced, individuals who may have a taxable estate if they die in 2012 would be wise to consider gifting a portion of their estate before year’s end.  By doing so, they can increase the portion of their estate that passes to their heirs free of federal estate tax.

2)    Individuals with a taxable estate at or above their current State Estate Tax Exemption-Residents of Connecticut, New Jersey and New York face lower estate tax exemptions than residents of most other states in the U.S.  Even those individuals whose estates will likely pass free of federal estate tax could have a state estate tax imposed which would similarly reduce the value of the property passing to their heirs.  Making a 2012 Gift is especially useful in reducing potential state estate tax exposure because none of the tri-state area states impose a state specific gift tax.

3)    Family Business owners looking to transition their businesses to their family-One of the many reasons that business succession planning fails is that the incoming owners may be unable to pay the current owners the full value of the companies they are purchasing.  In a family business, a senior family member willing to transfer some or all of their business to their successors as a gift can avoid this hurdle while assuring that the business continues uninterrupted.  For those concerned about a loss of income or not receiving sufficient assets to live off of, using a planning technique like a GRAT or a sale to a defective grantor trust may allow the senior family member to be more generous with their gifting.

4)    Real Estate Owners-In some areas of the country, real estate have begun to rebound.  Nevertheless, the values are still significantly lower than they were prior to the 2008 Financial Crisis.  Gifting a second home or investment property this year could be more tax efficient than transferring it when values increase.  In addition, individuals interested in gifting their primary residence can utilize a technique known as a qualified personal residence trust (QPRT) to transfer ownership of the property while retaining the right to live in the residence for a set period of years.

5)    Individuals with highly appreciating or income producing property-Property likely to increase in value over the next few years can either be gifted outright or to a trust using today’s values.  This allows the beneficiary of the gift to receive the full benefit of the appreciation while reducing the donor’s taxable estate.  Alternatively, by utilizing planning techniques like a GRAT or IDGT, the donor can freeze the value of their taxable estate while also providing their beneficiaries with a significant long-term benefit.  This is also true of property that produces significant income.

6)    Same Sex Married Couples and Domestic Partners-Without the benefit of a marital deduction at the federal level (New York same sex married couples) or at both state and federal levels (domestic partners), non-traditional couples are at a distinct transfer tax disadvantage.  In addition, whereas gifts between married couples are consider non-taxable events, gifts between same sex married couples and domestic partners are.  Fully utilizing the 2012 Gift opportunity may be a unique opportunity for these couples to make tax-free gifts to one and other.

7)    Individuals who have made intra-family loans-The current low interest rate environment have encouraged many family members to make loans to their junior family members.  However, if the junior family member does not pay back the principal of these loans and interest, the lender is deemed to have made a gift.  If the lender does not need or want the money back, a 2012 Gift can be used to forgive a portion or the entire loan amount.

Other individuals and situations may also be appropriate for 2012 Gifts.  Tomorrow, I will go over several planning techniques that can be used to maximize the benefit of making a 2012 Gift.

Please contact for more information about 2012 Gifts.

Defining Your Legacy

“Legacy” has become one of the more common buzz words used by estate planners to describe the end goal of preparing an estate plan.  This can take on many different meanings, but the essence of what a legacy is revolves around how we will be thought of when we are no longer around.

For some, legacy is attached to something tangible such as a business or a piece of real estate held by their family for generation.  In some cases, legacy revolves around the causes and ideas that one or more family members have passed down to their descendants.  And for others, it may simply mean the financial stability provided to a family by a loved one’s well thought out planning.

As we gather with our families over the next few days, I invite you all to think about how you define your legacy; how the legacies of others have affected you; and what lessons and ideals you would like to pass on to your children and grandchildren.  Though you may not be able to clearly define it, it is helpful to start picturing the legacy you wish to leave and begin building a solid foundation on which you can achieve it.

I wish you all a very happy and healthy holiday season!

Welcome to New York Estate of Mind!

Hi everyone,

I wanted to put up a quick post to replace the “Nothing Here” one that’s been on this blog since it was created.  I also hope everyone had a great holiday.

The first real post will go up late Sunday/early Monday and after that, you can expect a new post every Monday and Thursday with occasional additional posts when necessary.

So, check back on Monday and until then, enjoy your weekend!