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Estate Planning/Wealth Management: A Q&A

By Cynthia Turoski, on May 15th, 2019

Your personal financial affairs have many components that are inter-related. Your estate plan is one of those pieces. Whether you feel your estate plan is all in order or if it’s one of those items on your financial to-do list, this Q&A might help give you food for thought. Cynthia (Cindi Turoski), Managing Member of Bonadio Wealth Advisors, LLC, offers insights on some commonly asked questions

Q. Where do the 2019 federal estate tax laws stand?
A. The new tax law temporarily doubled the federal estate/gift exemption. For 2019, each person can transfer up to $11.4M during their lifetime or at death tax-free for federal taxes. That means a married couple can shelter up to $22.8M of assets from federal estate taxes! What’s more, federal estate tax law allows for portability, if properly elected on the estate tax return of the first spouse to die. That means if you do not use all of your federal exemption, your spouse can use the rest of yours in addition to his/her own. Note: the generation-skipping transfer tax exemption is not portable for gifting to grandchildren.

Q. What about New York’s laws?
A. For New York residents, the 2019 estate exemption has increased to $5.74M, so a married couple can shelter up to $11.48M, with certain strategies. However, unless you plan carefully, it could be $0. For example, if you die and your estate exceeds that year’s New York State exemption by more than 105%, the exemption is fully phased out to nothing! What’s more, unlike the federal exemption, each spouse must use his or her own New York State exemption – it’s not portable to the surviving spouse, it’s “use it or lose it.” If not used and your assets pass to your spouse, his/her estate combined with yours might throw them into an estate tax situation. There are strategies you can use to allow for each spouse’s exemption to be used. However, you need to take specific steps to set that up. Though New York State does not have a gift tax, the Governor’s budget proposal includes a provision that would pull back into your estate any gifts made within 3 years of death for those who die before January 1, 2026.
There are still some gifting “freebies” that are not subject to gift tax. The 2019 annual gift tax exclusion is $15,000 per person per donee or $30,000 per couple per donee. You may need to elect gift splitting on a gift tax return or make the gift from a joint account. You can also pay unlimited medical and tuition amounts for anyone if the funds are paid directly to the institution.

Q. Should people be doing more gifting to take advantage of the higher exemption?
A. That depends. The higher federal exemption is supposed to sunset on January 1, 2026 or sooner if there’s a change in the law, which could happen if there’s a new administration. In fact, there’s a proposal to bring back the $1M exclusion for lifetime gifts and $3.5M exclusion at death. So, the temporary nature of it encourages gifting now, but there are other considerations.

  1. Can you afford to gift? Certainly it doesn’t make sense to gift if you need the money for your lifetime. If you can afford it, now may be the time to take advantage of this increased federal estate/gift exemption for those with larger estates. You can lock it in by making big lifetime gifts of wealth you will not need for your lifetime. Should a spouse pass away, the estate should file an estate tax return, even if just to elect portability and lock in the higher exemption for the surviving spouse to use.
  2. Heirs get your cost basis on gifts, so it may be better to hold it for step-up in basis at your death. The income taxes to heirs have to be weighed with the estate tax to make a more fully-informed decision.

Q. Do individuals need to do estate planning if their estate is under those exemption levels?
A. Whether or not you have a taxable estate, there are many non-tax benefits of estate planning:

  • Simplify matters for your family by having everything in order
  • Ensure the proper flow of your assets— to whom, when, from where, how
  • Understand how and from where any estate taxes get paid
  • Asset protection – lawsuits, divorce
  • Provide for minor children and spouse
  • Provide for a special needs child
  • Account for the disposition of your business interests— if not through a buy/sell agreement
  • Avoid unintended consequences

Q. Are there common misconceptions about estate planning?
A. There sure are. Here are some common ones:

You don’t need an estate plan if you don’t have much. Even one account can cause havoc for your family if you don’t have a will. Beneficiary designations on retirement accounts, life insurance, and annuities are equally important. Providing for minor children is also imperative. A will can name guardians for minor children (better than the court making that decision!). To avoid court involvement, naming a financial guardian or trust may be needed for assets passing to minors since they can’t receive financial accounts as minors.

Your will is your estate plan. A will is part of it, but there is more to it. The overall estate plan is about having all your legal documents in place (will, power of attorney, health care proxy/living will, possibly lifetime trusts), having your assets properly titled, including primary and contingent beneficiary designations (again, care where minors are named) and possibly life insurance for certain needs, and understanding how it all comes together and would work.

Your will controls all your assets. Your will does not control beneficiary-designated accounts, joint accounts, accounts with Transfer on Death (TOD) or Payable on Death (POD). Those pass outside your will so you need to be aware of those implications.

Q. How often should you update your estate plan?
A. An update is warranted when there is a change in the tax law, or to your personal or financial circumstances or goals. It could mean that your estate planning documents need to be revised. Or the documents could be fine, but your estate plan might not be set up to play out the way you want. Having beneficiary designations and account ownership properly aligned, and keeping them aligned, is just as important as having your estate plan and documents in order. Keep in mind that beneficiary designations may need updating as institutions change or accounts transfer. It’s worth taking another look at the overall estate plan each year to understand how it all comes together and might play out.

Cynthia (Cindi) is Managing Member of Bonadio Wealth Advisors, LLC, the statewide financial planning division of The Bonadio Group. Cindi has over 30 years of tax and financial planning experience having handled all types of tax matters in Bonadio’s and another CPA firm’s tax departments for 11 years prior to transitioning into financial planning in 1998. She continues her involvement in tax matters for the CPA firm.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.

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