On June 14, 2016, Patricia Galteri was on panel at the First Long Island Investors’ Thought Leadership breakfast. This event was hosted for clients and friends of the firm on estate planning and transferring wealth to the next generation.
Ms. Galteri began the session by sharing with attendees how to design a will or revocable trust by using the core principles of estate planning, the unlimited marital deduction, and the Federal and New York State estate tax exemptions, and sharing best practices for estate planning. Some of her key points included:
- When building an estate plan for clients, her group works to understand a client’s family dynamic and wealth transfer goals and his/her philanthropic goals.
- The unlimited marital deduction allows a married individual to leave property to his or her spouse outright or through a trust for the benefit of a spouse without incurring a federal estate tax and thereby deferring the payment of federal estate tax until the death of the second spouse on all property owned by the first to die.
- Exemptions are in place that allow you to gift property to non-spouses without tax:
- The American Taxpayer Relief Act of 2012 made the lifetime estate and gift tax exemption permanent at $5 million per person. Indexed for inflation, that makes the current exemption $5.450 million, able to be used during life, at death or both.
- Portability – if the first spouse does not use her exemption, the second spouse can use it if certain actions are taken by the Executor of the estate of the first spouse to die.
- Importantly, New York does not have portability and its estate tax exemption is currently lower than the Federal exemption, but will mirror the federal exemption in 2019.
- Until that time, it is essential that a will and revocable trust be structured to assure the proper use of the New York estate tax exemption at the death of the first spouse or it is lost since it is not portable.
- A commonly used and highly efficient strategy to transfer wealth to the next generation in a tax free manner is to make annual exclusion gifts of up to $14,000 per individual (indexed for inflation), or $28,000 per married couple, per recipient. Annual exclusion gifts are in addition to the lifetime estate and gift tax exemption amounts.
- Establishing trusts may be an important component of a client’s estate planning. The client’s individual factual circumstances and goals will dictate which type of trust is most appropriate. Commonly used trusts to freeze the value of assets and remove appreciation from the client’s estate include a grantor trust, a grantor retained annuity trust and a qualified personal residence trust.
- It is important to keep in mind that Hillary Clinton has proposed that if she becomes President, she will work to reduce the federal exemption and not index it for inflation. She would also plan to raise the top estate tax rate to 45% from 40%.
- When developing an estate plan, life insurance is a component to consider.
For more information on the event, click here.