Tag Archive for: estate planning

estate taxes in new york

Strategies to Minimize Estate Taxes in New York

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Navigating the complexities of estate planning can be overwhelming, especially when it comes to tax implications. In New York, estates valued above a certain threshold are subject to estate tax, which can significantly impact your loved ones’ inheritance. This article identifies strategies to help you maximize your estate while keeping it below the tax limit.

From leveraging lifetime gifting to utilizing trusts, there are various options available to minimize your tax burden and ensure the smooth transfer of your assets to your heirs.

Understanding estate taxes in New York

Estate taxes in New York can be complex and challenging to navigate, especially for those who are unfamiliar with the intricacies of estate planning. As a resident of the Empire State, it’s crucial to have a solid understanding of how estate taxes work and how they can impact your financial goals.
The estate tax is a tax levied on the transfer of your assets upon your death. In New York, the estate tax is administered at the state level, in addition to the federal estate tax. This means that your estate may be subject to both state and federal estate taxes, depending on the value of your assets.

The current estate tax limit in New York

As of 2024, the estate tax exemption in New York is $6.94 million. This means that if the total value of your estate is less than $6.94 million, your estate will not be subject to the New York estate tax. However, if the value of your estate exceeds this threshold, your estate will be subject to a tax rate that can range from 3.06% to 16%.

It’s important to note that the estate tax exemption in New York is different from the federal estate tax exemption. The federal estate tax exemption is currently set at $13.61 million for individuals and $27.22 million for married couples. This means that if your estate is valued below the federal exemption, it will not be subject to the federal estate tax.

Understanding the difference between the state and federal estate tax exemptions is crucial in estate planning. If your estate exceeds the New York exemption but falls below the federal exemption, you may still be subject to the state estate tax, even if you are not subject to the federal estate tax.

Gifting strategies to reduce your estate

Lifetime gifting is a powerful tool in estate planning, as it allows you to transfer wealth to your loved ones while you are still alive. By taking advantage of the annual gift tax exclusion, you can reduce the overall value of your estate and potentially avoid or minimize the estate tax. Under the current tax laws, you can gift up to $18,000 per person per year (or $36,000 for married couples) without incurring any gift tax.

In addition to the annual gift tax exclusion, you can also utilize the lifetime gift tax exemption, which is currently set at $13.61 million per individual. This means that you can gift up to $13.61 million during your lifetime without incurring any gift tax. However, it’s important to note that any gifts you make will reduce the amount of your estate tax exemption at the time of your death.

Another gifting strategy to consider is the use of a 529 college savings plan. By contributing to a 529 plan, you can effectively remove those assets from your estate, while also providing a tax-advantaged way to save for your loved ones’ education. Additionally, 529 plan contributions qualify for the annual gift tax exclusion, making them a particularly attractive option for estate planning.

Creating a trust to protect your assets

Trusts can be a powerful tool in estate planning, as they allow you to transfer assets to your beneficiaries in a controlled and tax-efficient manner. There are several types of trusts that you can consider, each with its own unique advantages and considerations.

One popular option is the revocable living trust. With a revocable living trust, you can transfer ownership of your assets to the trust while you are still alive, but maintain control and access to those assets. Upon your death, the assets in the trust are distributed to your designated beneficiaries, bypassing the probate process.

Another type of trust to consider is the irrevocable trust. Unlike a revocable living trust, an irrevocable trust cannot be modified or terminated once it has been established. However, this structure can provide significant tax benefits, as the assets in the trust are no longer considered part of your estate. Irrevocable trusts can be particularly useful for protecting assets from creditors or for minimizing estate taxes.

Utilizing life insurance to cover estate taxes

Life insurance can be a valuable tool in estate planning, particularly when it comes to addressing the potential estate tax liability. By purchasing a life insurance policy, you can ensure that your loved ones have the funds necessary to pay any estate taxes that may be owed upon your death.

There are several types of life insurance policies that can be used for this purpose, including term life insurance and permanent life insurance (such as whole life or universal life). The choice of policy will depend on your specific needs and financial goals, as well as the size of your estate and the anticipated estate tax liability.

In addition to providing a source of funds to pay estate taxes, life insurance can also be used to create liquidity within your estate. This can be particularly important if your estate is primarily composed of illiquid assets, such as real estate or a closely-held business. By using life insurance to generate cash, you can ensure that your heirs have the resources they need to pay any taxes or other expenses associated with your estate.

Considerations for business owners in estate planning

If you are a business owner, your estate planning strategy will require additional considerations and nuances. Your business assets, including real estate, equipment, and intellectual property, can significantly impact the value of your estate and the potential estate tax liability.

One key consideration for business owners is the use of succession planning. By developing a clear plan for the transfer of your business to your heirs or other designated successors, you can ensure a smooth transition and minimize the potential for disputes or tax complications. This may involve the use of buy-sell agreements, family limited partnerships, or other specialized business structures.

Working with a financial planner and estate planning attorney

Navigating the complexities of estate planning and minimizing your estate tax liability in New York can be a daunting task, especially if you are unfamiliar with the intricacies of the New York estate tax system. That’s why it’s crucial to work with a qualified financial advisor and estate planning attorney who can guide you through the process and help you develop a comprehensive strategy.

Remember, estate planning is an ongoing process, and it’s essential to review and update your plan as your circumstances and the tax landscape evolve. By staying informed, seeking professional guidance, and taking a proactive approach, you can ensure that your legacy is preserved and your loved ones are protected.

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Making Your Inheritance Last a Lifetime

Making Your Inheritance Last a Lifetime

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Inheriting a large sum of money can be a life-changing event, but it can also be overwhelming. Without proper planning and management, the money can quickly disappear. To make your inheritance last a lifetime and secure your financial future, consider these five strategies.

 

Create a Financial Plan

The first step in making your inheritance last a lifetime is to create a financial plan. This plan should include a budget, investment strategy, and long-term financial goals. Consider working with a financial advisor to help you create a plan that is tailored to your specific needs and goals. Your plan should also account for any taxes or fees associated with your inheritance, as well as any debts or obligations you may have. By creating a solid financial plan, you can plan for the future so that your inheritance is used wisely and that you are able to pursue your financial goals over the long term.

 

Pay Off Debts and Build an Emergency Fund

One of the first strategies for making your inheritance last could be to evaluate and pay off any outstanding debts and build an emergency fund. This may help you avoid high interest rates and fees and provide a safety net in case of unexpected expenses or emergencies. Start by creating a budget and prioritizing your debts, paying off those with the highest interest rates first. Once your debts are paid off, focus on building an emergency fund that covers at least three to six months of living expenses. This will help you avoid dipping into your inheritance for unexpected expenses.

 

Invest Wisely

Another important strategy for making your inheritance last is to invest wisely. Consider working with a financial advisor to create a diversified investment portfolio that aligns with your long-term financial goals and risk tolerance. Avoid making impulsive investment decisions and instead focus on a long-term strategy that balances risk and reward. Remember to regularly review and adjust your investments as needed to ensure they continue to align with your goals and risk tolerance.

 

Consider a Trust or Estate Planning

Consider working with an attorney on a comprehensive estate plan and possibly setting up a trust. A trust cab help protect your assets and ensure they are distributed according to your wishes. A trust can also provide tax benefits and help avoid probate court. It’s important to work with a qualified attorney to set up a trust or estate plan that meets your specific needs and goals. Keep in mind that the cost of setting up a trust or estate plan can vary depending on the complexity of your situation.

 

Live Within Your Means

One of the most important strategies for making your inheritance last a lifetime is to live within your means. This means creating a budget and sticking to it, avoiding unnecessary expenses, and saving for the future. It’s important to resist the temptation to overspend or make large purchases that may deplete your inheritance quickly. By living within your means, you can ensure that your inheritance lasts as long as possible and provides financial security for years to come.

 

The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Stratos Wealth Partners and LPL Financial do not offer tax advice or services.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

 

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COVID college costs

College Costs in the Era of COVID-19

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Paying for College in the Era of COVID-19

This semester, millions of students, teachers, and college administrators are having to deal with a radically changed landscape while still managing college costs. At many institutions, classes have been cancelled or moved online. Sports programs have been suspended and dormitories, libraries, and labs shuttered. In fact, traditional campus life has been turned upside down thanks to COVID-19, and it’s unclear how long it will last.

Meanwhile, the cost of a college education is higher than ever. According to the College Board, the average total charges at four-year public colleges (in state) for the 2019-2020 academic year were $21,950. Average costs at four-year private nonprofit colleges were more than double that ($49,870).1 And while increases in costs have moderated in recent years, they continue to outpace inflation and median household income, resulting in a growing dependence on student loans; the average student borrower graduating in 2018 owed about $29,000.2

For cash-strapped students and parents, the current crisis has tipped the scales. Many are rebelling at the high costs in the face of a severely diminished college experience. Others have decided to wait until the crisis has passed before enrolling. Still others are questioning the very value of a college degree under current circumstances.

But the issue of soaring college costs is hardly new, and there are two sides to consider.

Students and Parents: Give Us a Break!

“We are paying a lot of money for tuition, and our students are not getting what we paid for,” comments one California parent, incensed at paying in-person prices for education that has moved online. On-campus facilities and services like computer labs, libraries, and networking opportunities have also been severely diminished by closures.

Already suffering from a pandemic-induced recession, many families are feeling the pinch and want relief. Students in particular have been hard hit with furloughs and layoffs, as many rely on retail service jobs to help them get by — the same jobs that have suffered the most in the face of closures and lockdowns. Many students had also signed leases for off-campus housing and are now stuck with them even if classes are cancelled. In short, students and parents are demanding tuition rebates, increased financial aid, reduced fees, and leaves of absences to compensate for what they feel is a diminished college experience.

Colleges: How Can We Manage?

Meanwhile, colleges and universities are taking a major financial hit from the pandemic. Enrollment is down. International admissions and offshore semesters have been halted. Entire programs have had to be suspended for health reasons. What’s more, substantial resources are required to set up an online curriculum, administer the courses, and train educators. There are also major costs involved with constant COVID testing of students and disinfecting of classrooms, offices, and other facilities. And, colleges must continue to pay existing vendor contracts, maintain facilities, and compensate their own staff. The situation has created an existential crisis among smaller colleges, who lack the endowments and funding of larger institutions. For many, it’s a question of survival.

A Mixed Response to Managing College Costs

Given this predicament and the widely varying circumstances faced by different institutions, it’s no surprise that their responses vary widely. A handful of universities have announced substantial price cuts. Some have cut fees. But most have kept prices flat, and a few have even increased them. While many offer refunds of fees and room and board, the reimbursement policies vary from school to school — and nearly all have drawn the line at tuition. Here’s a sampling of actions taken — or not — by different schools:

  • Full or partial refunds for room and board costs
  • Reduced tuition and fees
  • Discounts in the form of scholarships or loans
  • Renegotiated financial aid packages
  • Frozen tuition at previous year’s level
  • Imposition of “COVID fees” to cover added costs
  • Increased tuition to cover added expenses

Which of these actions a given school takes depends largely on its financial health and reputation. Smaller, private colleges with more at stake are generally offering more in the form of relief. Larger, well-endowed institutions, such as the Ivy League colleges and large state schools, trend toward the status quo. But there are many exceptions, and each institution has its own approach.

What Can You Do?

If you are a student or parent seeking compensation or relief, your options are limited, especially for the current semester. At nearly all institutions, tuition reimbursement is almost nonexistent after several weeks, no matter what the circumstances. Some schools are now offering tuition insurance, but coverage typically applies only when a student withdraws for medical reasons. To find out what relief may be available at your school, contact the registrar.

Alternatively, you can join the thousands of students and parents who have signed petitions or filed lawsuits demanding tuition cuts, housing reimbursements, and more. Check online to see if any such actions may be already in the works at your school.

In the end, like so many other issues arising from the pandemic, the current predicament facing students and schools is likely to be with us until a COVID-19 vaccine is in place. Even then, skyrocketing costs and mounting student debt pose longer-term issues. Any resolution will take time and likely have far-reaching implications for the costs and nature of a college education.

Notes:

1The College Board, Trends in College Pricing 2019.

2The College Board, Trends in Student Aid 2019.

                                                                                                                                                                            

This material was prepared by LPL Financial. This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that they views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. All performance referenced is historical and is no guarantee of future results.

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Estate Plan Review

Your Estate Plan: Time for a Checkup

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Your Estate Plan: Time for a Checkup

COVID 19 has brought tragedy to many families and businesses and impacted personal finances. It has also rendered many an estate plan inaccurate and unrepresentative of current circumstances. If you, your family or your beneficiaries have been affected by the virus, you may need to review and make changes to your plan. Consider the following questions in your review.

Are your beneficiary designations still accurate?

If you have lost someone named in your estate plan, you’ll need to make the appropriate changes. This could include changing beneficiaries, trustees, executors, healthcare decision-makers, your legal power of attorney or any other parties named in the plan.

You’ll also want to ensure that your beneficiary designations are up-to-date for your retirement accounts, such as an IRA (Individual Retirement Account) or 401(k), where beneficiaries are designated directly, rather than through your will.

Has the size of your estate changed?

If you have taken a financial hit as a result of the pandemic, then you may need to adjust some aspects of your estate plan. Adjustments may also be needed if the size of your estate has increased significantly. A large change in the total value of your assets could affect the distribution of your assets, particularly if you have made specific bequests to individuals or charities rather than dividing your estate proportionally. If you own a business, you may also need to consider how its value may have changed and how that might impact your plans to pass on control.

Are your minor children still protected?

If you have named a guardian for your minor children, check to ensure that person is still willing and able to serve in that role. And ask yourself if you still have confidence in your choice of guardian. A different job, a move out of state, or other changed circumstances may make your original choice no longer optimal.

In addition, it may make sense to keep the financial responsibilities of guardianship separate from the actual care of the minor children. You could choose a professional fiduciary to provide financial management on behalf of the minor children and name a family member to provide their actual day-to-day care.

Is your life insurance coverage still appropriate?

If your circumstances have altered materially as a result of the pandemic, you may also want to take a look at your life insurance coverage, too. Any significant changes to your life — births, deaths, marriages, or divorces — could affect your life insurance needs. It’s important to ensure that you have adequate coverage for you and your loved ones.

Do you have up-to-date documents?

Any updates needed as a result of your review will need to be reflected in your estate documents. These typically include a will, healthcare proxy, and power of attorney. They may also include a living will or trust documents. Keep in mind, however, that estate planning can be a complex endeavor. Therefore, any estate planning decisions or changes are best made with the help of a qualified legal professional and the rest of your professional team.

 

This material was prepared by LPL Financial. This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that they views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

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Getting prepared to retire

Retiring? Take Control of Your Assets

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Retiring? Take Control of Your Assets

After years of saving and investing, you can finally see the big day — retirement. But before kicking back, you still need to address a few matters. Decisions made now could make the difference between your money outlasting you or vice versa.

Calculating Your Retirement Needs

First, figure out how much income you may need. When retirement was years away, this exercise may have involved a lot of estimates. Now, you can be more accurate. Consider the following factors:

  • Your home base — Do you intend to remain in your current home? If so, when will your mortgage be paid? Will you sell your current home for one of lesser value, or “trade up”?
  • The length of your retirement — The average 65-year-old man can expect to live about 17 more years; the average 65-year-old woman, 20 more years, according to the National Center for Health Statistics. Have you accounted for a retirement of 20 or more years?
  • Earned income — The Bureau of Labor Statistics estimates that by 2022, 23% of people aged 65 or older will still be employed, almost twice the proportion that prevailed in 2002.1 If you continue to work, how much might you earn?
  • Your retirement lifestyle — Your lifestyle will help determine how much preretirement income you’ll need to support yourself. A typical guideline is 60% to 80%, but if you want to take luxury cruises or start a business, you may well need 100% or more.
  • Health care costs and insurance — Many retirees underestimate health care costs. Most Americans are not eligible for Medicare until age 65, but Medicare doesn’t cover everything. You can purchase Medigap supplemental health insurance to cover some of the extras, but even Medigap insurance does not pay for long-term custodial care, eyeglasses, hearing aids, dental care, private-duty nursing, or unlimited prescription drugs. For more on Medicare and health insurance, visit Medicare’s consumer website.
  • Inflation — Although the inflation rate can be relatively tame, it can also surge. It’s a good idea to tack on an additional 4% each year to help compensate for inflation.

Running the Numbers

The next step is to identify all of your potential income sources, including Social Security, pensions, and personal investments. Don’t overlook cash-value life insurance policies, income from trusts, real estate, and the equity in your home.

Also review your asset allocation — how you divide your portfolio among stocks, bonds, and cash. Are you tempted to convert all of your investments to low-risk securities? Such a move may place your assets at risk of losing purchasing power due to inflation. You may live in retirement for a long time, so try to keep your portfolio working for you — both now and in the future. A financial advisor can help you determine an appropriate asset allocation.

                            Robber Baron: Inflation
Here’s how a 4% inflation rate would erode $400,000 over a 25-year period. Because inflation slowly eats away at the purchasing power of a dollar, it’s important to factor inflation into your annual retirement expenses.
 Retiring? Take Control of Your Assets

 
  This example is hypothetical and for illustrative purposes only.

A New Phase of Financial Planning

Once you’ve assessed your needs and income sources, it’s time to look at cracking that nest egg you’ve built up. First, determine a prudent withdrawal rate. A common approach is to liquidate 5% of your principal each year of retirement; however, your income needs may differ.

Next, you’ll need to decide when to tap into tax-deferred and taxable investments. The advantage of holding on to tax-deferred investments (employer-sponsored retirement plan assets, IRAs, and annuities) is that they compound on a before-tax basis and therefore have greater earning potential than their taxable counterparts.2 However, earnings and deductible contributions in tax-deferred accounts are subject to income tax upon withdrawal — a tax that can be as high as 39.6% at the federal level. In contrast, long-term capital gains from the sale of taxable investments are taxed at a maximum of 20%.3 The key to managing taxes is to determine the best strategy given your income needs and tax bracket.

Also, tax-deferred assets are generally subject to required minimum distributions (RMDs) — based on IRS life expectancy tables — after you reach age 70½. Failure to take the required distribution can result in a penalty equal to 50% of the required amount. Fortunately, guidelines do not apply to Roth IRAs or annuities.2 For more information on RMDs, see the IRS’s RMD resource page or call the IRS at 1-800-829-1040.

A Lifelong Strategy

A carefully crafted retirement strategy also takes into account your estate plan. A will is the most basic form of an estate plan, as it helps ensure that your assets get disbursed according to your wishes. Also, make sure that your beneficiary designations for retirement accounts and life insurance policies are up-to-date.

If estate taxes are a concern, you may want to consider strategies to help manage income while minimizing your estate tax obligation. For example, with a grantor retained annuity trust (GRAT), you move assets to an irrevocable trust and then receive an annual annuity for a specific number of years. At the end of that period, the remaining value in the GRAT passes to your beneficiary — usually your child — generally free of gift taxes. Another option might be a charitable remainder trust, which allows you and/or a designated beneficiary to receive income during life and a tax deduction at the same time. Ultimately, the assets pass free of estate taxes to a named charity.

It’s easy to become overwhelmed by all the financial decisions that you must make at retirement. The most important part of the process is to consult a qualified financial professional, a tax advisor, and an estate-planning attorney to make sure that you’re prepared for this new — and exciting — stage of your life.

                   How Much Can You Withdraw?
This chart can give you an idea how much you could potentially withdraw from your retirement savings each year. For example, if you begin with $400,000 in assets and expect an average annual return of 5% over a 25-year retirement, you could potentially withdraw $18,000 per year. Withdraw more than that each year and you may outlive your money. Also consider: This chart doesn’t take income taxes into account, which can range from 10% to 35%, depending on your tax bracket.
 Retiring? Take Control of Your Assets
Assumes 5% average annual return, and that withdrawal rate is adjusted for annual 4% inflation rate after the first year. This example is hypothetical and for illustrative purposes only. Investment returns cannot be guaranteed.

 

1Source: Labor Force Projections to 2022, Monthly Labor Review, U.S. Bureau of Labor Statistics.

2Withdrawals from tax-deferred accounts prior to age 59½ are taxable and may be subject to a 10% additional tax. Neither fixed nor variable annuities are insured by the Federal Deposit Insurance Corp., and they are not deposits of — or endorsed or guaranteed by — any bank. Withdrawals from annuities may result in surrender charges.

3A 3.8% tax on unearned income may also apply.

Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2017 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

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Should I have a living trust?

Planning with a Living Trust

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Adding a Personal Backup With a Living Trust

The managers of well-run businesses usually name “backups” to keep things going smoothly — just in case. That’s also a smart plan for your personal finances, where you risk experiencing financial losses or other difficulties if you can’t make your own decisions because of a long illness or other unexpected problem.

You might prepare for this unhappy possibility by giving a family member or another trusted individual the legal power to act for you if necessary. But what would happen if you made an unsophisticated individual your personal financial backup? You might be more comfortable using what is called a “living trust” — with a professional trustee that could easily step into your financial management role if needed.

Standby Protection

Here’s how a living trust could potentially work. You initially transfer assets into the trust, naming yourself as the trustee. You also name a reliable, experienced trustee as the successor trustee. At that time, you simply continue managing your finances as usual, until the circumstances that you’ve specified in your trust agreement — an illness or extended travel, for instance — prevent it. Then, the successor trustee will take over management of the trust assets for as long as necessary.

Other Advantages

Providing a reliable financial backup is just one advantage a living trust can offer. Another is flexibility. You maintain control of your assets during your lifetime, and are free to make changes anytime. For example, you could give your trustee more or less responsibility, amend the trust’s provisions, or even cancel the trust entirely.

Here’s an additional advantage. Your trust can protect your family after your death by keeping your assets under a professional investment manager’s uninterrupted care. And living trust assets don’t pass through probate. That can make the settlement of your estate easier, faster, and often much less costly.

Eventually, your family or other beneficiaries will receive the trust’s assets on the schedule you’ve arranged and under the conditions you’ve specified. That’s another advantage — the ability to determine what happens to your wealth over the long term. And the terms of the trust are private, unlike the terms of a will that passes through the probate process.

Trial Period

Last, there’s a practical advantage: You can give your future asset management arrangements a test drive. If your trustee manages the trust assets during your lifetime, you’ll be able to decide whether you’re satisfied with the arrangements you’ve made — and with the quality and reliability of the trustee’s services.

 

 

 

 

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2018 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

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