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Estate Planning: A Q&A

October is an important personal finance month. Not only is it the extended deadline for filing your individual income tax return, but it’s National Retirement Security Month and Financial Planning Awareness Month and the week of October 17th is National Save for Retirement Week and National Estate Planning Awareness Week. Whew! Many reasons to focus on your personal finances.

Your personal financial affairs have many components that are inter-related. Your estate plan is one of those components and an integral part of your overall financial plan. 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.

Q. Where do the 2022 federal estate tax laws stand?

A. The 2017 tax law temporarily doubled the federal estate/gift exemption – until December 31, 2025. For 2022, each person can transfer up to $12,060,000 during their lifetime or at death tax-free for federal taxes. That means a married couple can shelter over $24M of assets from federal estate taxes. Furthermore, 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, so careful planning is needed.

There are still some gifting “freebies” that are not subject to gift tax. The 2022 annual gift tax exclusion is $16,000 per person per donee or $32,000 per couple per donee. As a couple maximizing the annual exclusion gifting, you need to elect gift splitting on a gift tax return, make the gift from a joint account or each individually gift from your own account. You can also pay unlimited medical and tuition amounts for anyone if the funds are paid directly to the institution.

Q. What about New York’s laws?

A. For New York residents, the 2022 estate exemption has increased to $6,110,000, so a married couple possibly can shelter over $12M, 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% (i.e. $6,415,500 for 2022), the exemption is fully phased out to…nothing! Furthermore, 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, possibly phasing out their NY estate exemption, leaving the total combined estate subject to NY estate tax. 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 - both in your estate planning documents and in your personal finances.

Though New York State does not have a gift tax, any gifts made within three years of death are pulled back into your estate.


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 is always possible in these high federal deficit times. At sunset, the exemption cuts in half, possibly to ~$6.5M with inflation indexing. The temporary nature of it encourages gifting now as the clock is ticking on the chance to take advantage of the favorable estate tax rules. However, 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. Gifting has the added benefit of removing future appreciation from further compounding your estate situation. 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. On the flip side, maybe you have large charitable gifting goals. That can also reduce your estate. There are many techniques/strategies to customize to your situation and goals. If you could still have a taxable state or federal estate at the possible 2026 estate exemption levels, you might want to still consider making gifts to use the currently high exemption.
  3. 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
  • Name agents to act on your behalf to manage your finances or health care in the event you can’t
  • Ensure the proper flow of your assets— to whom, when, from where, how
  • Understand how and from where any estate taxes get paid so you can assess liquidity needs and avoid inadvertently disinheriting someone.
  • 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. Oh, there sure are. Here are some common ones.

Myth: You don’t need an estate plan if you don’t have much.

Reality: Even one account can cause havoc for your family if you don’t have a will. Properly structuring beneficiary designations on retirement accounts, life insurance, and annuities are equally important and could have unintended consequences. The titling of your assets (i.e., joint ownership, transfer-on-death) impacts the distribution of your assets at death and might not be the way you intend. Providing for children from a prior marriage or 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 is likely needed for assets passing to minors since they can’t inherit financial accounts as minors.

Myth: Your will is your estate plan.

Reality: A will is part of your estate plan, but there is more to it than just that. Your estate plan provides for your potential incapacity during lifetime and for what happens at your death. The overall estate plan involves having all your legal documents in place (will, power of attorney, health care proxy/living will, possibly lifetime trusts), appropriately titling your assets and structuring your beneficiary designations (again, taking care where minors are named) to minimize estate taxes and direct the distribution of those assets, possibly having life insurance for certain needs, and understanding how it all comes together to be sure if would work as you intend. It all needs to be carefully coordinated.

Myth: Your will controls all your assets.

Reality: Your will does not control beneficiary-designated accounts, joint accounts, and accounts with Transfer-on-Death (TOD) or Payable-on-Death (POD). Those pass outside your will so you need to factor in 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, goals or even just the make-up of your finances. 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. So many times, we see the will or revocable living trust documents are just right, but the make-up of the assets and beneficiary designations foils it. Or maybe the financials are set up just right, but the structure of the document foils it. Or neither are set up right or they get out of alignment as life happens and family situations, finances, goals, or laws change that impact it working the way you intend. 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.

We encourage you to keep up the momentum on addressing your estate plan or to get started soon if you haven’t. Whether the federal or state estate tax applies to you or not, there are many nontax benefits to reviewing and shoring up your estate plan. Please consult your tax advisor as soon as possible on your specific situation. Reach out to our experts today to further discuss.

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.