Act Two - YOUR GUIDE TO RETIREMENT PLANNING AND LIVING
by Tami Luhby with expert Jennifer B. Cona, Esq.
The Problem: We have two children but trust one with money more than the other. To avoid future estate taxes, we’ve been funneling our money to one child with instructions to give her sibling his share after we pass on. What are the tax consequences of doing this and how can we do it differently?
The Expert: Jennifer B. Cona, and elder law and estate planning attorney at Cona Elder Law in Melville.
The Strategy: Establish an irrevocable trust and fund it with your annual gift-tax exclusion gifts.
The Results: You can maximize the amount of money you are “funneling” to your children and be assured that they will inherit equally upon your death.
How It Works: You should establish an irrevocable trust naming both your children as equal beneficiaries. If it’s properly drafted and funded, the money you contribute will not be included in your estate. Since you trust your daughter with the money more than your son, you can name her as trustee. Through the trust, you’ll determine how much each child gets and when- instead of relying on your daughter’s good graces.
♦ You and your spouse each will be able to contribute $11,000 a year per beneficiary (the annual gift tax exclusion amount).
♦ That means that, together, you and your spouse can contribute $44,000 to the trust every year.
♦ It also means you won’t have to file a gift tax return.
♦ And, importantly, there won’t be any impact on your lifetime exclusion, the amount you can pass to heirs without estate taxes. (This year that amount is $1 million; next year it rises to $1.5 million.)
♦ Note: The way you are gifting today means you can give only $22,000 a year tax free, since you make gifts only to your daughter.
The problem with your present approach is this: Not only have you been limiting your annual excludable gifts by one-half, but you also have been increasing your daughter’s income tax liability, because she will owe taxes on al of the interest earned, even though half of that money is intended for her brother. And don’t forget that your present approach also has been having an impact on her estate-planning, because she can give her brother only $11,000 a year without incurring gift taxes or cutting into her lifetime exclusion amount. Further, you don’t have any assurance that she will act as you wish or be fair and equitable with what she gives your son.
Cona Elder Law is a full service law firm based in Melville, LI. Our firm concentrates in the areas of elder law, estate planning, estate administration and litigation, special needs planning and health care facility representation. We are proud to have been recognized for our innovative strategies, creative techniques and unparalleled negotiating skills unendingly driven toward our paramount objective - satisfying the needs of our clients.
Medicaid Home Care Changes on the Way
Medicaid Rates in 2020
5 Answers that Clear Up Medicare Annual Election Period Confusion
5 Medicare Tips: Open Enrollment October 15 to December 7, 2019
Maintaining Medicaid Eligibility After the Death of a Spouse
Tax Planning vs. Medicaid Planning Avoid These Costly Mistakes