Common questions we hear from clients
"Dani Nodelman goes above and beyond to make the estate planning process as clear and comfortable as possible."
- Christopher W.
What Kind Of Taxes Will I Have To Pay When I Die?
Depending on the State, a decedent is responsible for the payment of both State and Federal gift and estate taxes. Estate and gift taxes are in addition to the taxes paid on income. No estate or gift tax is due unless or until the total of lifetime gifts combined with the assets remaining in the individual’s estate exceeds certain levels. The basic exclusion amount for imposition of the New York State estate tax for dates of death on or after January 1, 2021, and before January 1, 2022, is $5,930,000. As of January 2018, a New Jersey Estate Tax is no longer being imposed for individuals who die on or after that date; however, New Jersey still imposes an Inheritance tax ranging from 0% to 16% based on the decedent's relationship to the beneficiary (classes of beneficiary). The Federal estate tax exemption for 2021 is $11.7 million (it was $11.58 million for 2020) and is annually adjusted for inflation. This means that when you pass away, the value of your estate is calculated and any amount more than $11.7 million is subject to the federal estate tax unless otherwise excluded. A married couple has a combined exemption for 2021 of $23.4 million. The current exemption, doubled under the Tax Cuts and Jobs Act of 2018, is set to roll back to pre-2018 amounts in 2026. The Biden administration has proposed significant cuts to the estate tax exemption. A consultation with a knowledgeable attorney will allow you to discuss how the proposed legislation will impact your estate plan.
What Assets Are Included As Part Of My Taxable Estate?
All assets that you own at the date of your death are part of your taxable estate. This means that your home, even if jointly owned, IRAs, 401Ks, insurance policies and jointly owned bank accounts and brokerage accounts are all part of your taxable estate. Assets held in an irrevocable trust are not included in the estate unless assets were transferred within 3 years of death.
Are There Any Transfers (Gift Or Inheritance) That Are Tax Free?
Yes, there are certain exclusions from gift tax. The current annual gift tax exclusion pursuant to the IRS is $15,000 per person or $30,000 per married couple. In other words, each individual has the right to gift $15,000 ($30,000 for married couples) in any calendar year to any number of persons. For example, a family with two children who are married and each child has three children, the total amount the individual can gift annually is $150,000. If the individual is married, the total amount of the annual gift will be $300,000. This amount can significantly reduce an individual's estate for tax purposes if an annual gifting program is instituted. Other gifts excluded from gift tax are unlimited payments on behalf of another person made directly to a provider of educational services for tuition or to a provider of medical services. An individual can reduce his total assets and eventual tax liability by paying a grandchild’s college tuition, or nursery school bills directly to the educational institution. Hospital or doctor bills paid by the individual directly to a hospital or doctor on behalf of another person also carry no gift tax consequences. The most significant exception to gift and estate tax is the marital deduction. The marital deduction allows each spouse the right to give an unlimited amount of assets during life or after death to the other spouse who is a U.S. citizen without any estate or gift tax consequences.
If I’m Married, What Tax Planning Can I Do To Save On Taxes?
For married couples, an exemption trust can be very helpful. Even though married couples have a right to an unlimited marital deduction, a couple’s assets are not necessarily protected from hefty estate taxes when the second spouse dies. Married couples with total assets over the applicable exemption level should consider the use of an exemption trust to avoid Federal estate taxes. The trust can be structured so that the surviving spouse receives income from the trust and can access trust principal at the discretion of the trustees. The provisions of the trust can vary, within limits. Before implementation of such a plan, or other available tax saving devices, you should have a thorough discussion of the available strategies with a knowledgeable attorney.
I Am Single. Isn’t There Anything I Can Do To Save On Taxes?
There are numerous opportunities to save on gift and estate taxes if you are a single individual. A consultation with a knowledgeable attorney will allow you to explore your own unique options. And don’t forget the non-taxable gifts as discussed above.
What Is Probate?
Probate is a legal process that allows the court to prove or disprove the decedent’s Last Will and Testament, allowing heirs to contest the will. They can also appoint and grant authority to the executor of the estate to act on behalf of the estate during the estate administration.
If a decedent has a Will:
An Executor is appointed if a decedent has a will.
If a decedent does not have a will:
An administrator is appointed if the decedent does not have a will.
How Does Probate or Administration Start?
The probate process commences when a petition and original last will and testament are submitted to the Surrogate’s Court in the county where the decedent was domiciled at the time of death. The petition provides the court with the necessary information to move forward with validating the will and appointing the executor. The petition informs the court about the decedent’s death, the executor, the beneficiaries named in the will (as well as heirs who would inherit if there was not a will – if different) and the estimated value of property and assets passing under the will.
How Is A Will Validated By The Court?
All heirs are notified of the decedent’s death and the initiation of the probate process. Before the will is validated by the court, the judge (the Surrogate) must be satisfied that there are no objections to the will.
In New York, for example, the executor of the estate obtains signed waivers from each heir stating they waive the right to object to the will. The executor notifies heirs who do not sign the waiver of the required time and date to appear in court to make their objections. Any heirs who do not appear at the required time will be presumed by the court to have waived their right to contest the will. If there are no objections and if the will adheres to New York requirements, the court will validate the will. Please note that each state has its own set of regulations in admitting a will to probate. Please consult an attorney in the state where the decedent was domiciled at the time of death.
What If The Will Is Contested?
Any heirs who do not sign the waiver and appear in court at the required time may raise their objections to the validity of the will. In a separate hearing, the court will render a decision to either uphold the current will, revert to a previous will or reject a codicil (amendment) to the will or reject the will in its entirety.
What If The Will Is Rejected?
If the will is rejected in its entirety, the estate is distributed to the beneficiaries in accordance with the laws of the intestacy (which is determined by the State in which the decedent was domiciled at the time of death). In other words, the estate will pass to the beneficiaries in the same manner as if the decedent died without a will.
How Long Does Probate Take?
Many factors impact the length of the probate process, such as county backlog of probate cases to be heard, time to locate and notify all heirs, and whether or not there are objections to the will. The process will take longer if there are objections to the will or to the appointment of the executor.
When Is Probate Complete?
Once the executor has officially been appointed by the court to act on behalf of the estate, the executor is given documentation as proof of such authority called Letters Testamentary. These Letters will be necessary to collect the decedent’s assets, manage bank accounts, etc. This marks the end of probate and the beginning of estate administration.
What Is Estate Administration?
Estate administration is a much more lengthy process that involves locating and collecting all of the decedent’s assets, reviewing and paying valid debts and claims against the estate, filing tax returns and paying applicable taxes, making distributions to beneficiaries from remaining assets, filing a final accounting of the estate and closing the estate. Note that estate administration is state specific when it comes to preparing and filing the estate tax returns. Please consult an attorney in the state where the decedent was domiciled at the time of death to learn more about the states regulations with respect to estate administration.
What If I Die Without A Last Will And Testament?
When an individual has no plan for distributing assets at death, that individual is deemed to have died intestate. When an individual dies intestate, the court appoints an administrator to administer the assets and state law determines how the assets are distributed. What this means is that the state in which the individual is domiciled at the time of death will ultimately decide who will get your assets and in what proportion, whether or not it is consistent with what you would have wanted.
I Own Assets Jointly With Other Family Members. Is This Okay?
Assets held by an individual in joint accounts or “in trust for” accounts, pass directly to the beneficiary by operation of law. Assets with named beneficiaries such as insurance policies or retirement benefits are also treated in the same manner. To effectuate the direct transfer, varying paperwork such as a death certificate may be required. In some instances, inheritances by operation of law can be very convenient. However, this method of transferring assets to heirs does not allow for special planning such as tax reduction or trusts for grandchildren or other heirs. Also, assets held jointly may result in unintended inheritances.
What Is A Last Will And Testament?
A last will and testament (“Will”) is a document that directs who is to inherit estate assets and in what proportion. A Will also designates the executor who is responsible for administering the estate, a trustee to oversee and manage any assets held in trust and guardians to step into the decedent’s shoes and care for any minor children. Considerable planning can be accomplished with a Will. For example, a Will can include tax saving trusts and trusts for the protection of disabled loved ones or those who have difficulty managing assets. To be effective, state law requires that a Will be submitted for probate. This is the process by which the Court validates the Will and authorizes the executor to act on behalf of the estate. Following probate, the estate administration proceeds with identifying, gathering and valuing the assets, paying all creditors, filing the appropriate tax returns and distributing assets in accordance with the directions set forth in the Will.
I’ve Heard A Lot About Trusts. What Can They Do For Me?
A trust is an agreement that can provide for the management and distribution of assets during life and/or after death. Assets owned by the creator of the trust are transferred over to the trust. Trustees are appointed by the trust’s creator to manage the assets according to the directions given in the trust agreement. A trust agreement designates who will use the trust assets during the life of the creator and who will inherit the assets owned by the trust at the death of the creator or at some other specified time.
Trusts created during the lifetime of the creator do not require court involvement in the form of probate because the trustees are given the legal authority to act when the trust document is executed. Testamentary trusts are trust agreements that are part of a Will and do require that the court appoint the Trustee. The Trustee, like the Executor, must value the assets, pay creditors, file required tax returns and see to the proper distribution of assets.
Are There Different Types Of Trusts?
There are many types of trusts, each suitable for a different purpose. Some of the most commonly used trusts are the supplemental needs trust, irrevocable life insurance trust, credit shelter or bypass trust, qualified personal residence trust, charitable remainder or annuity trust and spendthrift trust. Certain of these trusts are created during life and stand alone. Others are testamentary trusts and are created within a Will. Testamentary trusts don’t take effect until death. Trusts can be complicated and must be tailored for each individual situation. A consultation with a knowledgeable attorney will help you to explore your options.