Feldman, Kramer & Monaco, P.C. | <strong >Estate planning 101 & 102: Part 4</strong >
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Estate planning 101 & 102: Part 4

September 2017 | Steven Kramer, Esq.
In part 3 of this multi-part series, we discussed probate and trusts along with offering other important estate planning information. In the final part of this special series, we will be discussing Irrevocable Trusts, which are more complex than Revocable Trusts and usually created for other reasons (although Irrevocable Trusts also help to avoid probate).

An Irrevocable Trust – if done properly and timely – will protect an individual’s assets, should that individual need entry into a skilled nursing facility (nursing home) or wish to receive home care in their residence.

Skilled nursing facilities are quite costly and could deplete an individual’s assets in a short period of time. If the Irrevocable Trust is created and funded with your assets such as the home, stocks, bonds and bank accounts – AND 60 months elapse before entry into a nursing home – these assets would be protected from probate but not considered your assets for Medicaid eligibility purposes.

In a nursing home scenario, you would not be able to protect your investment income, Social Security income or pension as these would be utilized to pay for your care with any shortage paid by Medicaid. An Irrevocable Trust is more expensive than a Revocable Trust as the cost can exceed $3,500 along with the cost of funding the trust.

With an Irrevocable Trust, you must select a Trustee(s) to manage the Trust and all of its assets as you are required to cede control to that selected Trustee(s). It is suggested that an individual arrange for a conference with an experienced Elder Law attorney to explain an Irrevocable Trust specific to your circumstances.

You are encouraged to contact the National Legal Office to obtain a referral to an Elder Law attorney in your area as many attorneys lack the requisite experience required to draft these documents.

The last part of this series about estate planning looks at estate taxation (commonly referred to as the “death tax”), which is a tax payable to the state as the result of the death of an individual. Keep in mind that not every state has an estate tax (for example, New York State has one while Florida does not, and New Jersey has an inheritance tax).

The Federal estate tax can be costly if the decedent’s estate exceeds the exemption amount. The estate tax rate on those estates above the exemption is now 45 percent of the excess. The exemption amount in 2017 is $5.49 million or $10.98 million for a married couple.

Under the present law, spouses can combine their estate tax exemptions allowing married couples to make gifts or leave an estate that is double the Federal exemption without owing any tax.

If one spouse dies, the survivor can use the unused exemption of the deceased spouse as well as his or her own exemption. New York State does not allow for portability for its estate tax: therefore, if one spouse dies and leaves everything to the survivor, the survivor only has one exemption at the time of his or her subsequent death.

If the combined estates of a couple exceed the single exemption, it is possible to retain the second exemption of both spouses if they execute a Credit Shelter Trust within their estate plan.

It should be noted, though, that New York also has a quirk in its estate taxation: If someone passes away with a taxable estate that exceeds 105 percent of the exemption amount, the entire estate (not just the excess) is taxed. This “cliff” can result in a hefty tax if the estate is just over the exemption amount.

It used to be acceptable (before 2014) to plan on reducing a person’s estate by making annual gifts to heirs or others during their lifetime. Now and until 2018, gifts made within three years of a death are brought back into the estate for taxation purposes.

Keep in mind, because of the recent Supreme Court Decision, that same-sex married couples are entitled to the same benefits as opposite sex couples in New York State.

If you have any questions about the matters discussed in this article or the previous parts of this series, please contact me at 800-292-8063 or 631-231-1450.