Wills Insights

The federal estate and gift tax exemption (known as the “basic exclusion amount”) has increased to $12.06 million per taxpayer in 2022. The exemption in 2021 had been $11.7 million. The increase means that in 2022, an individual can make gifts during life or at death totaling $12,060,000 without incurring gift or estate tax; a married couple can transfer $24,120,000 of assets. The annual gift tax exclusion has also increased, to $16,000 per donee (or $32,000 if spouses elect gift-splitting).

The gift tax annual exclusion for gifts to non-citizen spouses has also increased in 2022, to $164,000.

Note that the estate and gift tax exemption is slated to be reduced to $5 million, indexed for inflation, as of January 1, 2026. With this known reduction in the exemption approaching, we recommend consulting with your estate planning attorney to discuss possible strategies to take advantage of the large exemption presently available.

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While many may be familiar with Special Needs Trusts, some are still not familiar with tax-free Achieving a Better Life Experience (ABLE) savings accounts which were created under a 2014 federal law and currently available in New Jersey (and 46 other states). Funded correctly, ABLE accounts permit disabled individuals and their families to save money for disability-related expenses without compromising eligibility for needs-based benefits such as SSI, Medicaid, and other education, housing, health and food stamp benefits (such as FAFSA and SNAP). To establish an account, the designated beneficiary (and owner) of an ABLE account must be legally blind or have a medical disability that occurred prior to age 26. While interest earned on the account is tax-free, ABLE accounts with assets up to and including $100,000 are disregarded as a resource for SSI purposes. Distributions from the ABLE account may be made only to or for the benefit of the disabled individual for “qualified disability expenses,” which broadly include education, housing, transportation, assistive technology, health and wellness, legal and funeral expenses, etc. Starting in 2022, and for the first time in four years, annual contributions to an ABLE account increased to $16,000 (matching the 2022 annual gift tax exclusion amount). While ABLE account balances are subject to Medicaid estate recovery upon the death of the disabled beneficiary, in certain disability planning circumstances the utilization of an ABLE account, either alone or in conjunction with a Special Needs Trust, may be an integral part of smart disability planning.

Births, deaths, marriages and divorces reshape the definition of “family” for individuals on a constant basis. It’s no wonder, then, that family law and estate planning often go hand in hand. Estate planners and divorce attorneys alike are often presented with “what if” questions that span both areas of law. Here, we explore a few common questions clients may have when faced with these life transitions. The goal of this article, is to help clients make decisions that protect their loved ones and their assets.

Changing a Will

Can I change my will while getting divorced and should I? Although the last thing that many clients want to do once the divorce action has begun is to engage another attorney, it’s actually a good idea for them to review their estate plan this time.

It is very common for parents to provide funds to their children over their lifetime, but are these transfers gifts or loans? A recent ruling in the Tax Court, Estate of Bolles v. Commissioner, T.C. Memo. 2020-71, 119 T.C.M. (CCH) 1502 (June 1, 2020), highlights the importance in estate planning of differentiating between loans and gifts.

Mary Bolles was a loving mother of five children whom she tried to treat equally. Her practice was to keep a record of her advances to and the occasional repayments from each child. Based on her intent and the advice of tax counsel, she treated the advances as loans. She forgave the “debt” account of each child every year to the extent of the annual gift tax exclusion amount. According to the Tax Court, her practice would have been noncontroversial had she not advanced substantial funds to one son, Peter.

When Peter ran into financial difficulties with his architectural business, Mary supported him and between 1985 and 2007 she transferred $1,063,333 to Peter or for his benefit.

It has been our hope that estate and gift tax reform would be settled by the time this article goes to print. Unfortunately, this is not the case. Revenue issues involving the debt ceiling and stop-gap spending are circulating in Congress at the same time as legislative priorities, like infrastructure, are being hashed out, and procedural steps, like filibuster and reconciliation, are being threatened. Tax reform is but one issue in the mix, and its ultimate resolution is influenced by, and dependent upon, the resolution of a number of the others which are still unresolved. This article will provide a summary of the most recent available information.

Perhaps the most significant proposal on the table is the reduction of the lifetime estate and gift tax exemption, often referred to as the “unified credit,” from its current $11,700,000 per person to $6,020,000 per person in 2022 as estimated by the staff on the Joint Committee on Taxation. The lifetime exemption was increased from $5.5-million to $11-million (with adjustments for inflation) as part of the 2017 Tax Act. The increased exemption amount is due to sunset by its own terms on December 31. 2025, but the current proposal would accelerate that timetable. Individuals looking to make maximum use of the higher lifetime exemption currently available will want to consider making gifts before any reduction becomes effective. Under the proposed bill, the provision would apply to decedents dying and gifts made after December 31, 2021.

The current proposals would eliminate the use of discounts for transfer tax purposes when valuing passive, nonbusiness assets. Discounts are generally based on concepts of minority interest and lack of control, and can reduce the value of an asset for gift or estate tax purposes by as much as 50% or more. The proposal would not affect the valuation of assets that are used in the conduct of a trade or business, which could continue to be valued at a discount. Discounts have been useful in leveraging lifetime estate and gift tax exemptions. The new rule, if adopted, would be effective as of the date of enactment.

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Elizabeth Candido Petite recently spoke with the New York Times for an article The Unequal Inheritance: It Can Work, or It Can ‘Destroy Relationships’.  In the article Elizabeth shares her insights on estate planning strategies that can be used when someone decides to bequeath different amounts to their heirs.  The strategies she shares come from her experience helping estate planning clients navigate the intricacies of early inheritance, gifting for caregiving children and second marriage families.

Births, deaths, marriages, and divorces reshape the definition of family for individuals on a constant basis. It’s no wonder, then, that family law and estate planning often go hand in hand. Estate planners and divorce attorneys alike are often presented with “what if” questions that span both areas of law. Here, a few common questions are explored which can help guide people faced with these life transitions as they make decisions to protect their spouses, children, and assets.

Can I change my Will while I’m getting divorced? Should I?

Although the last thing that many people want to do once the divorce action has begun is engage another attorney, it is actually a good idea to revisit your estate plan at this time. Public policy prohibits disinheriting your spouse, so a spouse who is not named in the other’s Will could file a claim for the “spousal elective share” to receive a portion of the deceased spouse’s estate. The filing of a divorce complaint does not prevent a soon-to-be former spouse from inheriting an equitable share of marital assets. The New Jersey Supreme Court has analyzed what should happen in this situation and applied a remedy which does not allow the surviving spouse a windfall, but at the same time recognizes that at the time of the death, the parties were in fact still married.[1]

On March 25, 2021, Senators Sanders and Whitehouse introduced a bill titled “For the 99.5% Act.” If enacted, the following are among some of the significant provisions:

  • Federal estate tax exemption reduced from $11.7 million to $3.5 million
  • Gift tax exemption reduced from $11.7 million to $1 million

To the owners of family businesses, estate planning can sometimes be an after-thought. Owners are often so involved in building their business and managing its daily operations that they do not have time to devote to the planning that will become important when the owner is ready to hand over management control and ownership to successors. It is often the case with successful family businesses that there has been little or no thought given to the transition of management and ownership, with the result being there is no succession plan in place. Further, available strategies to transfer the ownership of the business to younger generations of the family in a tax-effective manner may not have been utilized.

When a family business is one of the assets, or perhaps the primary asset, a well thought out strategic and financial plan for the business and an estate plan for the family are critically important. The following is a brief and by no means exhaustive outline of some points to consider.

Strategic Planning

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Every state has an unclaimed property program holding forgotten property belonging to its residents such as uncashed checks, security deposits, abandoned accounts, and more. “Unclaimed property” generally refers to tangible (items in safe deposit boxes) and intangible (bank accounts, stocks, and checks) personal property. Eventually, the state takes over the unclaimed property in a process known as “escheatment.”

In New Jersey, the Unclaimed Property Administration is a section of the Department of the Treasury. The Mission Statement of the Unclaimed Property Administration is set forth on its website and reads as follows:

“The Unclaimed Property Administration (UPA) recovers and records abandoned or lost intangible and tangible property. The UPA’s goal is to return this property to the rightful owner and/or heirs. The New Jersey Unclaimed Property Statute ensures that property owners never relinquish the right to this property and the UPA only acts as a custodian until the property is returned.”

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