Key points:
Estate planning considerations for families should begin with identifying core priorities to align all legal decisions with personal values.
Establishing and regularly updating a will is essential to direct the distribution of assets and avoid the complexities of probate.
Selecting capable and trusted individuals to serve as executors, trustees, or guardians—and naming reliable backups—is a critical step in ensuring that your final wishes are executed accurately and your dependents are protected.
Interview with Jennifer V. Abelaj, J.D., CPA
Estate planning is more than just a legal necessity; it is a meaningful way to protect your family’s future and honor the resources you have been blessed with.
In our Q&A with Jennifer V. Abelaj, J.D., CPA, she addresses a few key estate planning considerations for families to help you ensure your assets are distributed according to your wishes while minimizing the financial burden on your heirs.
Q: What pitfalls should a Grantor avoid when placing property into a living trust?
Fund the Trust
Jennifer: The first is to ensure that she fully funds the trust immediately. The trust can only manage the assets that it actually holds. If the Grantor fails to transfer her assets to the trust after it is created, she loses the benefits that the trust was intended to provide.
Those benefits might have been to avoid probate, to remove assets from the Grantor’s taxable estate, to provide an income stream for beneficiaries or protect disabled beneficiaries.
Determine Control
Second is to understand that trust creation falls on a spectrum, where one side provides maximum control with minimal tax savings and the other side provides no control with maximum tax savings.
The Grantor should be aware of what is her priority in the long-term and create a trust based on those goals.
Q: To ensure their child inherits their property, some property owners add their child’s name to their property deed. What should grantors consider before passing down property via a deed?
Jennifer: Grantors should consider the tax implications of passing down a property via a deed.
For purposes of determining tax basis, passing property to a beneficiary via a deed will generally result in a gift.
If the gift is a completed gift, such that the grantor does not retain a power of appointment over the property, the gift will reduce the grantor’s lifetime exemption ($12.06M for federal purposes for tax year 2022), and the recipient will receive the grantor’s original tax basis.
The Little CPA Note: To learn more about tax basis, check out Inherited Property: What is Step-Up in Basis?
The Little CPA Note: For example, let’s say your parents bought their personal residence for $100,000 and it has a fair value of $500,000 today. If you received the property via a deed and sold it today, your taxable gain would be approximately $400,000 ($500,000 sales price – $100,000 original tax basis). However, if you received the property via a revocable trust and sold it, your taxable could be $0 due to step-up in basis ($500,000 sales price – $500,000 step-up in basis).
A deeded asset will not receive a step-up in basis when the grantor dies because it is no longer owned by the grantor.
The Little CPA Note: The step-up in basis is not lost on all property deeds. For instance, CA has a Revocable Transfer-On-Death Deed that preserves stepped-up basis for beneficiaries.
When the recipient later sells the deeded asset, the capital gains will be determined on the grantor’s original cost basis.
In addition to losing the opportunity for the date of death step-up in basis, the property is not protected from the beneficiary’s creditors, divorce or opportunity for special needs planning.
Q: What should grantors consider when passing down (splitting) inheritance to multiple beneficiaries?
Jennifer: (So many things!)
Consider Needs
First, consider whether each beneficiary has the same needs – whether financially, socially or for family.
Does equal mean equitable?
One person’s needs might be greater than another.
If treating beneficiaries unequally, will someone object to it?
If so, it might make sense to avoid probate and place your assets in a trust during life where it continues to be administered without court intervention after your death.
Consider Prudence
Second is to consider if the beneficiary is in a position to properly manage the bequest. In other words, is it better to place the assets in trust for the beneficiary’s benefit or give it to him outright? This is an important consideration for a beneficiary who is a minor, is disabled or has special needs, or might just be bad with money.
A trust is necessary in these scenarios.
Consider Gifts
Third is whether you want to make gifts during life to test how each beneficiary will manage the bequest. It might provide useful insight on how to structure distribution at death.
Q: Let’s say relationships change and the Grantor wants to modify their estate plan. Can the terms of a Will or revocable trust be changed by the Grantor?
Jennifer: With most estate planning, the terms of the Will or revocable trust can be changed by the Grantor.
In limited cases, even irrevocable trusts can be modified (but be aware that there might be a tax impact).
Grantors sometimes find that they have a difficult time deciding how to divide their estates.
Think in 5-10 year increments instead of 50 year increments. If a Grantor sets up an estate plan in year 1, then can always change if necessary.
Q: What if a beneficiary doesn’t want to inherit property due to the legal or tax liability that comes with it? Can they disinherit it?
Jennifer: Yes.
The IRS provides a mechanism for a beneficiary to renounce his interest in an estate. This Qualified Disclaimer must be made within 9 months of the decedent’s date of death in order for the renunciation to be ignored for tax purposes, and generally in accordance with the laws of the State in which the decedent was domiciled.
A beneficiary who makes a Qualified Disclaimer of his interest in an estate is generally deemed to have predeceased the decedent and the assets pass to the next heirs in line.
If a beneficiary makes a disclaimer more than 9 months after the decedent’s date of death, it is treated as an unqualified disclaimer and the beneficiary is treated as if he gifted the interest to the next heirs in line.
Final Estate Planning Considerations
Estate planning is an important process for all families, and there are many considerations to make when drafting a plan.
The information shared in this blog post should provide you with a good starting point as you work to create or update your estate plan.
Fore more information on why an estate plan is important, check out Demystifying the Estate Plan: A Q&A with Portia Wood, Esq., LL.M.
About the Expert
Jennifer V. Abelaj is founder of the Jennifer V. Abelaj Law Firm, located in New York City. Her practice emphasizes all aspects of Trusts and Estates, Not-for-Profits, and relevant Taxation.
Jennifer helps clients plan and carry out goals for estate tax planning and trust administration. She implements sophisticated tax structures to maximize the wealth that individuals pass on to their heirs or charitable beneficiaries. Jennifer represents executors, fiduciaries, and trustees in administering estates with the Surrogate’s Court or communicating with the IRS on estate, gift or trust tax audits.
Jennifer was named as Rising Leader of the Private Client Global Elite Directory for 2022-2023. Jennifer a director of The Nonprofit Cooperative and Chair of the Trust and Estates Section of the Metropolitan Black Bar Association. She conducts regular seminars and workshops on trust administration, business succession planning, and creation of not-for-profits. She has been quoted for expertise in taxation in: The New York Times; Bloomberg; Tax Notes; Law360.
Prior to practicing law, Jennifer was a Certified Public Accountant.
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