Category: Estate Planning

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Capital Gains Tax Estate Administration Estate Planning Estate Tax Income Tax

Avoiding Zero Basis for Inherited Assets

James R. O’Neill —

Practitioners involved with the administration of trusts and estates of a decedent may be confronted with the issue of dealing with one or more assets of a decedent discovered after the administration is believed to have been concluded. Consideration of timely reporting of those assets for estate tax purposes may be essential to avoiding assignment of a zero basis to such assets.[1]

The recipient of property from a decedent generally takes a basis equal to the fair market value of the property at the time of the decedent’s death (or the alternate valuation date (i.e., six-months after the decedent’s date of death)) pursuant to Section 1014(a) of the Internal Revenue Code of 1986, as amended (the “IRC”). However, under Proposed Regulations issued in 2016 addressing the so-called consistent basis reporting rules, the basis of inherited property may unexpectedly be determined to be zero.

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Estate Planning Estate Tax Exemption Capture Planning Generation-Skipping Transfer (“GST”) Tax Gift Tax

Take Note: Significant 2024 Gift/Estate Tax Exemption Inflation Increases

Kyle G. Durante —

The New Year brought inflation adjustments to the federal and some states’ gift/estate tax exemption amounts, thereby increasing the amount individuals can gift during life and at death free of federal and state gift and estate tax. Given the significant 2024 inflation adjustments, particularly with respect to the federal gift/estate and generation-skipping transfer (“GST”) tax exemption amounts, the New Year presents a prime estate planning opportunity not only for those individuals who have not previously engaged in significant gifting, but also for those individuals who previously made gifts to capture their exemptions and who now have additional exemption available.

The Federal Gift, Estate, and GST Tax Exemption Amounts

Under current federal law, the federal gift/estate tax exemption amount (i.e., the basic exclusion amount) is an amount equal to $10,000,000, adjusted for inflation since 2017. In 2023, the federal gift/estate tax exemption amount was $12,920,000, which increased to $13,610,000 with the 2024 inflation adjustment (a $690,000 increase).

In addition, the federal generation-skipping transfer (“GST”) tax exemption amount is an amount that mirrors the basic exclusion amount. Accordingly, the federal GST tax exemption amount also increased from $12,920,000 to $13,610,000 as of January 1, 2024.

These amounts will continue to increase for inflation each year until December 31, 2025. Under current federal law, the increase in the federal basic exclusion amount is scheduled to automatically sunset on December 31, 2025, from $10,000,000 plus an inflation adjustment, to $5,000,000 plus an inflation adjustment. As such, on January 1, 2026, the exemption amounts are scheduled to be automatically slashed by approximately one-half.

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Estate Planning

How to Avoid Cutting the Painting in Half

Sean R. Weissbart —

Many parents wish to bequeath their assets to their children in equal shares, yet they don’t consider that a plethora of valuable assets would become worthless if equally divided. How do you dispose of a painting, a family heirloom, or a diamond ring when a parent with multiple children owns one of each item? Estate planning documents must be drafted to avoid beneficiaries fighting about who should be the rightful owner of such assets.

The Bible, unsurprisingly, tells of one of the most famous feuds between two people over something that cannot be divided. In the Book of Kings, two women argued before King Solomon that the same newborn son belonged to her. To resolve the dispute, the king declared, “[c]ut the living child in two and give half to one and half to the other.” 1 Kings 3:25.

In fact, the king’s horrific order constituted a test to determine the identity of the baby’s real mother.[*] However, in our modern world without monarchs and with a backlogged judicial system, legal documents must provide clarity regarding the distribution of assets that cannot be equally divided.

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Estate Administration Estate Planning Litigation Probate Surrogate’s Court Practice

No One Can Contest a New York Will If It Includes an In Terrorem Clause. Right? Right?!?!?!!?

Sara K. Osinski —

Unfortunately, including an in terrorem (“no contest”) clause in your Will does not make it impenetrable under New York law.

Although New York law recognizes in terrorem clauses as valid,[i] they are narrowly construed by the courts. An in terrorem clause in a Will threatens that if a beneficiary challenges the Will, such beneficiary (and, typically, all of his or her descendants) will be treated as if he or she predeceased the testator, thereby disinheriting the beneficiary. The purpose of an in terrorem clause is to discourage litigation and ensure that the testator’s intentions are carried out.

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Estate Planning Estate Tax Gift Tax

Increasing the Available Gift and Estate Tax Exemption for a Surviving Spouse

James R. O’Neill —

In planning for the estate of a surviving spouse, the availability of the unused gift and estate tax exemption of his or her deceased spouse can be important, and particularly so with the impending reduction of the exemption. The federal gift and estate tax exemption, which was doubled pursuant to the 2017 Tax Cut and Jobs Act and presently stands at $12,920,000, is scheduled to be automatically reduced by approximately one-half on January 1, 2026.[1] The exemption is portable between spouses allowing for use by the surviving spouse of any unused exemption of the deceased spouse. This portability arises under IRC Section 2010(c)(5)(A), which provides that a deceased spousal unused exclusion (“DSUE”) amount becomes available for use with a surviving spouse’s subsequent transfers during life and at death, but only if the executor of the first-to-die’s estate timely files Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return (“Form 706”). The due date of a Form 706 required to elect portability is the date which is nine months after the decedent’s death, or the last day of the period covered by an extension, which may be obtained for six additional months. The so-called DSUE election is automatically made by timely filing a Form 706 unless the executor affirmatively opts out as permitted on the return. The portability election, once made, becomes irrevocable once the due date of the Form 706, including extensions granted, has expired.

An executor may file a Form 706 for the estate of any U.S. citizen or resident, but the executor is only required to file a Form 706 under IRC Section 6018(a) if the value of the gross estate, plus adjusted taxable gifts, exceeds the exemption amount for the year of death. Given the effort and expense of preparing a Form 706 when not otherwise required, particularly when the assets of the surviving spouse are not expected to exceed the current exemption amount, a Form 706 is often not filed when the first spouse dies, resulting in the deceased spouse’s unused exemption being unavailable to the surviving spouse. With the scheduled reduction of the exemption after 2025, it may, in many cases, be important to recover that unused exemption of the deceased spouse for use by the surviving spouse.

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Asset Protection Estate Planning Matrimonial Law

To Trust, or Not to Trust: That Is the Question

Sean R. Weissbart —

Mom and Dad, a lovely couple in their early 50s, meet with me to discuss their estate planning. Mom shares, “our two children—ages 23 and 25—are special and productive. One just graduated law school and the other finishes medical school next spring.” Dad jumps in, “when we die, split all of our asset equally among our kids.”

And so, I ask, “would you like them to receive their inheritance outright or in trust?” Mom answers nicely, but firmly, “like I said, our children are fantastic. We want to give them full access to their inheritance. No interest in tying it up in trusts.” To which I respond, “got it. But just to confirm—are you aware trusts can protect assets from taxes, divorce, and creditors?” Their interest piques. Dad says, “we hadn’t thought of that. Please tell us more.”

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Capital Gains Tax Estate Planning Income Tax

IRS Disallows Step-Up in Tax Cost Basis for Assets Held by an Irrevocable Grantor Trust

Kyle G. Durante —

Under current law, assets acquired from a decedent receive an adjustment in cost basis to fair market value, thereby potentially eliminating significant unrealized gain. Although Congress has and likely will use this tax benefit as a pawn in future tax legislation, under current law, this benefit remains available to taxpayers. With respect to assets held in trusts excluded from estate tax, the IRS recently released guidance shutting the door on the application of this generous tax treatment to such assets.

Section 1014(a)(1) of the Internal Revenue Code of 1986, as amended (the “Code”) provides that “. . . the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or otherwise disposed of before the decedent’s death by such person, be (1) the fair market value of the property at the date of the decedent’s death . . . .” But does this Code section apply to assets that are held in an irrevocable trust that is not subject to estate tax upon the settlor or donor’s death, when the settlor of the trust is treated as the owner of the assets for income tax purposes during his or her lifetime?

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Estate Planning

Don’t Wait until Time Is Up

Sara K. Osinski —

Lately, friends, family, and clients seem to be asking the same questions: “When should I think about estate planning? Is it actually necessary for me to have an estate plan?” As life is unpredictable, it is better to start planning sooner rather than later. In fact, upon attaining the legal age of majority in your state of residence (typically at age 18), you should begin considering some form of an estate plan. An individual’s estate planning needs, however, vary based on numerous factors, assessed generally in the timeline below.

Your 20s

Individuals in their 20s are typically focused on starting their careers, acquiring assets, and just living life—death is consequently one of the last things on their minds. In fact, many individuals in their 20s do not consider any form of an estate plan and likely do not believe they need one. While a Will or trust may not be necessary for most individuals in their 20s, “ancillary” estate planning documents, such as a power of attorney, healthcare proxy, and living will, should all be considered. These ancillary documents are also known as “living” estate planning documents because they go into effect while you are alive as soon as they are executed. These ancillary documents appoint an agent or agents to carry out your financial or health wishes, as applicable, in the event you become incapacitated, either temporarily or permanently. These documents may also assist in avoiding the need for the appointment of a guardian or conservator if you were to become incapacitated or unable to care for your own financial and/or medical affairs.

In addition to these ancillary documents, individuals in their 20s should also ensure that all of their bank accounts, brokerage accounts, retirements accounts, and life insurance policies have valid beneficiary designations. By designating a beneficiary on these accounts and policies, you not only control the disposition of your assets, but also may effectively avoid probate at death.

Of course, if you get married, divorced, remarried, have children, buy a home, and/or inherit a large sum of money in your 20s (or at any time), then estate planning becomes more crucial (as discussed in more detail below).

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Estate Planning

A Different Kind of IPO: Going “Public” with Your Private Foundation

Andrew M. Logan —

Many philanthropically minded clients have established their own private foundations to support charitable causes they believe in now, and to serve as a vehicle for giving for future generations of their family. While many family foundations flourish for multiple generations, many others struggle to survive for a single generation after the founders are gone. In the latter cases, the governing body (e.g., Board of Directors, Trustees, etc.) of the organization may start to consider terminating its status as a private foundation under Section 507[1]. Clients currently serving as directors or trustees should be aware that termination does not necessarily mean shutting down their organization, as one of the ways to terminate a private foundation is to convert to a public charity.[2]

In order to convert from a private foundation to a public charity, the private foundation must operate as a public charity as described in 509(a)(1), (2), or (3) for a continuous 60-month period, commencing on the first day of the tax year after it notifies the Internal Revenue Service (“IRS”) of its intent to terminate as a private foundation (the “Termination Period”).[3] In general, in order to qualify as a public charity, an organization must fall into one of the following three categories: (1) “per se public charities,” such as churches, schools, and hospitals, that qualify by virtue of the nature of their activities; (2) “publicly supported public charities” that qualify because they receive a substantial amount of their support from the public; or (3) “supporting organizations” that qualify as public charities because they support one or more of the organizations described in (1) and (2).[4]

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Estate Planning Estate Tax Gift Tax Income Tax Litigation

A Promise Is a Promise: The Enforceability of Charitable Pledges under New York Law

Haley B. Bybee —

Charitable contributions are often utilized in estate planning to assist a client not only in supporting his or her favorite charities but also to reduce tax liabilities both during life and at death. However, before clients agree to make any charitable contributions, they should understand that the agreements between themselves and charitable organizations, such as pledge agreements, can be binding.

Historically, New York courts have favored enforcing charitable pledges as a matter of public policy and in doing so, courts have relied on three common law contract law theories: (1) unilateral contract, (2) bilateral contract, and (3) promissory estoppel.[1]

Courts have most frequently relied on the theory of unilateral contract to enforce charitable pledges.[2] Under that theory, a charitable pledge or promise to make a future gift constitutes a unilateral offer, and “when accepted by the donee charity by the incurring of liability or detriment . . . [the offer] ripens into a binding contractual obligation of the donor and [is] enforceable against him.”[3] There have been numerous cases in which a donor’s promise to make a charitable contribution has been enforced on this ground.

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