One important approach to estate planning is generational gifting, which allows individuals to transfer wealth to their heirs during their lifetime rather than waiting until their passing. This not only helps reduce potential estate tax liabilities, especially in New York, but also often strengthens family bonds and provides immediate financial support to loved ones.
Some key aspects of generational estate planning and gifting include:
Wealth Preservation
Determining which assets to gift raises various questions: which assets have the greatest potential to appreciate; what is the cost basis of the asset being gifted and who is receiving the gifted asset? These gifts should also be timed effectively. In New York and at the Federal level, gifts made within three (3) years of death are “clawed-back” into one’s estate when a decedent’s estate is valued for estate tax calculation purposes. By gifting assets, you are able to reduce the taxable size of your estate by both the current value of the asset gifted and its future appreciation, which will likely preserve more wealth.
Use of Trusts
No one wants to “give up control” over their hard-earned savings, and it is hard to know if the recipient of the gifted monies will use those funds (or preserve them) the same way you have throughout your life. Trusts are excellent vehicles to allow for lifetime gifts to be made to individuals who may not be old enough, mature enough, or able to handle assets appropriately. The individual making the gift and creating the trust (the “grantor”) is able to benefit the beneficiary of the trust and appoint a trusted person (the “trustee”) to handle the monies for the beneficiary’s benefit and in accordance with the trust terms.
Estate and Gift Tax Exemption Considerations
As of 2024, the Federal Estate and Gift Tax Credit is set at $13.61 million per individual and $27.2 million for a married couple. This exemption “sunsets” on December 31, 2025 unless congressional action is taken. If no action is taken, the exemption amount is likely to be reduced by 50 percent in 2026. As such, individuals with very large estates may wish to consider making large gifts of assets now in order to utilize the exemption amount that may no longer be available in the future. Since the exemption could be reduced to roughly $7 million per person in the future, utilizing the existing bonus amount of $6.61 million may be advisable.
As of 2024, the New York estate tax exemption is $6.94 million per person. While New York does not have a gift tax, the estate tax is very onerous and requires pre-planning in order for a married couple to ensure they are able to take advantage of each of their exemptions upon the first spouse to die. Otherwise, it could be lost upon the first spouse’s passing. New York’s estate tax also includes a gradual rate structure, which can be particularly punitive for larger estates.
Annual Gift Tax Exclusion
The Federal gift tax exclusion for 2024 allows individuals to gift up to $18,000 per recipient annually without incurring any gift tax or using any part of their Unified Credit. Couples can combine their exclusions to gift up to $36,000 per recipient, which is a powerful tool for reducing the size of an estate over time, without using any portion of the unified tax credit.
Generational gifting is an effective estate planning strategy that offers numerous benefits. By taking advantage of current gift and estate tax exemptions, individuals can ensure their wealth is transferred to the next generation in a manner that is both financially effective and emotionally rewarding. Consulting with an estate and tax planning attorney can help in navigating the complexities of both the Federal and New York estate tax laws and create a personalized plan that aligns with your goals.
Lauren C. Enea, Esq. is a Senior Associate at Enea, Scanlan & Sirignano, LLP. She concentrates her practice on Wills, Trusts and Estates, Medicaid Planning, Special Needs Planning and Probate/Estate Administration. She believes that it is never too early or too late to start planning for your future and she enjoys working with individuals to ensure that their plan best suits their needs. Ms. Enea received a B.S. in Business Management from Quinnipiac University graduating Magna Cum Laude and a J.D. from the Pace University School of Law graduating Summa Cum Laude. She is admitted to practice law in New York and Florida. She can be contacted at 914-948-1500 or www.esslawfirm.com
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14 Nov 2024
0 Commentsthe best gift you can give
One important approach to estate planning is generational gifting, which allows individuals to transfer wealth to their heirs during their lifetime rather than waiting until their passing. This not only helps reduce potential estate tax liabilities, especially in New York, but also often strengthens family bonds and provides immediate financial support to loved ones.
Some key aspects of generational estate planning and gifting include:
Wealth Preservation
Determining which assets to gift raises various questions: which assets have the greatest potential to appreciate; what is the cost basis of the asset being gifted and who is receiving the gifted asset? These gifts should also be timed effectively. In New York and at the Federal level, gifts made within three (3) years of death are “clawed-back” into one’s estate when a decedent’s estate is valued for estate tax calculation purposes. By gifting assets, you are able to reduce the taxable size of your estate by both the current value of the asset gifted and its future appreciation, which will likely preserve more wealth.
Use of Trusts
No one wants to “give up control” over their hard-earned savings, and it is hard to know if the recipient of the gifted monies will use those funds (or preserve them) the same way you have throughout your life. Trusts are excellent vehicles to allow for lifetime gifts to be made to individuals who may not be old enough, mature enough, or able to handle assets appropriately. The individual making the gift and creating the trust (the “grantor”) is able to benefit the beneficiary of the trust and appoint a trusted person (the “trustee”) to handle the monies for the beneficiary’s benefit and in accordance with the trust terms.
Estate and Gift Tax Exemption Considerations
As of 2024, the Federal Estate and Gift Tax Credit is set at $13.61 million per individual and $27.2 million for a married couple. This exemption “sunsets” on December 31, 2025 unless congressional action is taken. If no action is taken, the exemption amount is likely to be reduced by 50 percent in 2026. As such, individuals with very large estates may wish to consider making large gifts of assets now in order to utilize the exemption amount that may no longer be available in the future. Since the exemption could be reduced to roughly $7 million per person in the future, utilizing the existing bonus amount of $6.61 million may be advisable.
As of 2024, the New York estate tax exemption is $6.94 million per person. While New York does not have a gift tax, the estate tax is very onerous and requires pre-planning in order for a married couple to ensure they are able to take advantage of each of their exemptions upon the first spouse to die. Otherwise, it could be lost upon the first spouse’s passing. New York’s estate tax also includes a gradual rate structure, which can be particularly punitive for larger estates.
Annual Gift Tax Exclusion
The Federal gift tax exclusion for 2024 allows individuals to gift up to $18,000 per recipient annually without incurring any gift tax or using any part of their Unified Credit. Couples can combine their exclusions to gift up to $36,000 per recipient, which is a powerful tool for reducing the size of an estate over time, without using any portion of the unified tax credit.
Generational gifting is an effective estate planning strategy that offers numerous benefits. By taking advantage of current gift and estate tax exemptions, individuals can ensure their wealth is transferred to the next generation in a manner that is both financially effective and emotionally rewarding. Consulting with an estate and tax planning attorney can help in navigating the complexities of both the Federal and New York estate tax laws and create a personalized plan that aligns with your goals.