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The information contained on this website is provided for informational purposes only and should not be construed as legal advice on any subject matter.  If you wish to discuss the topics addressed on this website, or other estate planning issues, please contact Lara Sass & Associates, PLLC.

CONTACT US * info@laramsass.com * (212) 971-9770



November 4, 2016





Overall Estate Plan Review – New Year’s Resolution.  Creating or updating an estate plan is not necessarily a year-end matter, although we like to take this time to remind our clients and colleagues to do so (perhaps as part of a New Year’s Resolution?)  Regardless of the stage of life you are in - whether a newlywed, a new parent, recently divorced or otherwise, you need to establish an estate plan.  Advance planning allows you to retain the greatest degree of control over your life and your assets.  If you neglect to create a Will, appoint a guardian for your minor children, designate a person to care for your finances or execute a healthcare directive, decisions regarding your estate, your children's guardians, your finances and your medical care will be made by the government and the courts, without regard to your personal wishes.  An estate plan offers you peace of mind, knowing that your long-term needs will be met, that your assets will be protected for the benefit of the person or persons whom you choose and, most importantly, your family will be protected in the event of your incapacity or death.  Once incapacity strikes, it is usually too late to implement these mechanisms and your only option is a court proceeding.  You can never be too young, be too old, or not have enough assets to put together an estate plan.  It is never too early or too late to prepare.


If you already have an estate plan, it should, without question, be reviewed and updated periodically. In particular, if your net worth or income has changed significantly or if you have experienced life changes, such as (1) marriage, divorce or remarriage (you do not want an ex-spouse to receive your assets); (2) birth or adoption of a child or grandchild (you want to name an appropriate guardian and not unintentionally disinherit that child); (3) your child has reached the age of majority (it is important that they execute health care proxies, HIPAA notices and powers of attorney, so that you have access to their medical and financial information, since they are now considered adults); (4) one of your beneficiaries, such as a child, grandchild, spouse, partner or parent, has become a person with special needs (you want to ensure that their inheritances will not disqualify them from receiving government benefits); or (5) you have become part of an unmarried, committed couple (without a Will or trust, your partner may not receive any of your estate under state law).


Annual Exclusion Gifts of $14,000.  In 2016, each person may gift up to $14,000 (or $28,000 if spouses elect to split gifts) per donee to as many individuals as he or she would like, without being subject to gift tax or using his or her $5,450,000 lifetime Federal gift and estate tax exemption.  This is called the annual gift tax exclusion.

If you would like to give an outright gift to a loved one and have it qualify for the annual exclusion for 2016, the following requirements must be met:

  • Cash or a cashier’s check must be given to the donee in 2016.

  • If you would like to give the donee a check, the donee must deposit the check in 2016 and it must clear in the ordinary course of business (this may occur in January).

If you would like to make a gift to a loved one in trust, there are a number of available alternatives.  Please contact us to discuss the myriad of options available, depending upon your wishes and the needs of the beneficiary.


Gifts to Minors in Trust.  As a result of the annual exclusion, depending upon the size of their families, wealthy parents and grandparents can make annual gifts to their children and grandchildren that may easily exceed $100,000 per year, without incurring a gift tax or reducing the lifetime gift tax exemption amount.  Over time, annual gifting can effectively reduce the donor's gross estate by removing the value of the gifts, as well as all the future appreciation associated with those gifts.


When making these annual gifts, the donor must decide whether or not to make an outright gift. However, when gifting to a minor, an outright gift of any substantial size is almost never advisable. Accordingly, the donor should consider alternative methods that offer continued control in order to preserve the gift and allow it to appreciate for the benefit of the minor.  Gifts to these trusts may be earmarked for a child or grandchild’s health, education, maintenance and support, or for any purpose.


The 2503(c) trust and the Crummey trust are two of the most commonly utilized methods for making annual exclusion gifts to minors.  Please contact us if you would like to establish one of these trusts for minor children or grandchildren, into which you may make annual exclusion gifts for 2016.


TIME IS OF THE ESSENCE! - Gifting Using Lifetime Exemption Amount.  The federal lifetime estate and gift tax exemption is $5,450,000 in 2016, and the Federal estate tax rate is at 40%.  Estate planning for the wealthy often involves transferring wealth to family members using one’s lifetime gift tax exemption.  In the case of transfers of interests in closely-held businesses, valuation discounts are often utilized for estate planning purposes to leverage the lifetime exemption amount.   Although these transfers are not necessarily made as part of year-end planning, the Treasury (IRS) recently issued Proposed Regulations that could have a dramatic impact on estate planning by eliminating valuation discounts.  For those looking to minimize their future estate tax, these discounts (explained below) can be essential.  It can also be essential for others, as well.  If you are concerned about protecting a family business from the risks of future divorce, or protecting assets from lawsuits or malpractice claims, discounts can enable you to leverage the maximum amount of assets out of harm’s way, without triggering a gift tax to do so.


However, time is of the essence.  Once the Proposed Regulations are effective, which could be as early as the beginning of 2017, the ability to claim discounts might be substantially reduced or eliminated, thus curtailing tax and asset protection planning flexibility.  Furthermore, as the year winds to a close, it will become more difficult to structure planning transactions to conform to a variety of potential tax challenges.  As the 2016 year-end gets closer, it will become more difficult and at some point, will become impossible to have banks and trust companies create trust accounts.  If you are unsure of what you might wish to do, we recommend that you take the preliminary steps as soon as possible.  For example, if you don’t already have trusts that could serve as appropriate receptacles for 2016 discounted gifts, it would be wise to establish trusts immediately.  You can always determine later which assets and how much to transfer.


Here is a simple illustration of discounts.  Client has a $20 million estate which includes a $10 million family business.  He gifts 40% of the business to a trust to grow the asset out of his estate.  The gross value of the 40% business interest is $4 million.   Since a minority 40% trust/shareholder cannot force a sale or redemption of its interest, the non-controlling interest in the business transferred to the trust is worth less than the pro-rata value of the underlying business.  Thus, the value should be reduced to reflect the difficulty of marketing the non-controlling interest.  As a result, the value of the 40% business interest transferred to the trust might be appraised, net of discounts, at $2.4 million.  The discount has reduced the estate by $1.6 million from this one simple transaction.


Election Impact.  If the Democrats win the White House and the Democratic estate tax proposals are enacted, the results will be devastating to wealth transfer planning.  Pundits have prognosticated that a Democratic White House win could affect down-ballot races and flip the Senate to the Democrats.  The Democratic tax plan includes the reduction of the estate tax exemption to $3.5 million, elimination of inflation adjustments to the exemption, a $1 million gift tax exemption and a 45-65% (!) tax rate.  The Democratic plan will most likely include the array of proposals included in President Obama’s Greenbook which seek to restrict or eliminate grantor retained annuity trusts (GRATs), note sale transactions to grantor trusts, and more.  Wealthy taxpayers who don’t seize what might be the last opportunity to capture discount planning, might lose much more than just the discounts.  They might lose many of the most valuable wealth transfer strategies.


Contact us to discuss how to proceed given the proposed regulations and looming election.  A collaborative effort between your Trusts and Estates attorney, financial advisor, accountant and insurance broker is essential to have your planning done well.   




Typically, a gift to charity is deductible as an itemized deduction, subject to certain AGI (adjusted gross income) limitations based on the type of property contributed and the type of charity receiving the gift.  If the amount contributed to charity in a single year exceeds the amount that a donor may deduct due to AGI limitations, the excess can generally be carried forward for up to five years.  Where the deduction is limited to the donor’s basis, if the fair market value is lower than the donor’s basis (i.e., the asset has depreciated in value), the deduction will be limited to fair market value.


Gifts of Cash.  Gifts of cash to a public charity (including a donor advised fund) are deductible up to 50% of the donor’s AGI. Gifts of cash to a private foundation (non-operating) are deductible up to 30% of the donor’s AGI.


To ensure that you may take the deduction in 2016 for a charitable:

  • If you deliver cash or a check, the charity must receive it by December 31, 2016.

  • If you mail a check, it must be postmarked no later than December 31, 2016 and it must be received by the charity in the ordinary course of mail deliveries.

  • If you use a credit card, the gift must be made before December 31, 2016, regardless of when you pay your credit card bill.

Gift of Appreciated Long-Term Stock (and Other Long-Term Capital Gain Property).  Making a gift of appreciated long-term stock (held for over one year) is typically more beneficial than a gift of appreciated short-term stock or cash.  A gift of appreciated long-term stock to a public charity (including a donor advised fund) is deductible at its fair market value up to 30% of the donor’s AGI, and the donor escapes taxation on the appreciation.  A gift of appreciated long-term stock to a private foundation (non-operating) is deductible to the extent of the donor’s basis for non-qualified appreciated securities and at the stock’s fair market value for qualified appreciated securities (typically, publicly-traded stock), up to 20% of the donor’s AGI.   


The date on which a gift of stock is made depends on how the securities are delivered.  There are different rules depending on whether the securities are held in street name or as physical certificates.  Check these rules carefully in order to ensure that your year-end charitable gift is deductible in 2016.





Gift of Appreciated Short-Term Stock (and Other Short-Term Capital Gain Property or Ordinary Income Property).  By contrast, a gift of appreciated short-term stock is deductible only to the extent of the donor’s basis, up to 50% of the donor’s AGI when contributed to a public charity (including a donor advised fund) and up to 20% of the donor’s AGI when contributed to a private foundation (non-operating).


Gift of Bonds.  The deduction for a gift of bonds, whether or not publicly traded, is limited to the donor’s basis.  A gift of bonds is subject to the same AGI limitations described above for long-term and short-term capital gain property.


Gift of Art.  A gift of tangible personal property, such as art, that will be used by a charity in conducting its exempt functions is deductible at its fair market value when contributed to a public charity (including a donor advised fund), up to 30% of the donor’s AGI.   When such property is contributed to a private foundation (non-operating), the deduction is limited to the donor’s basis, up to 20% of the donor’s AGI.  A gift of tangible personal property that will not be used by the charity in conducting its exempt functions is deductible to the extent of the donor’s basis, up to 50% of the donor’s AGI when contributed to a public charity (including a donor advised fund) and up to 20% of the donor’s AGI when contributed to a private foundation (non-operating).


IRA Distributions to Charity.  Each year, a taxpayer who is 70 ½ years old or older may exclude from income up to $100,000 of an IRA distribution that is transferred directly to a qualified charity.


Gifts to Charity in Trust.  Charitable trusts allow individuals to give to charity, while providing for their family at the same time.  Using charitable trusts—on their own or in conjunction with donor-advised funds—could offer greater flexibility and control over intended charitable contributions while helping to fulfill philanthropic, estate planning and tax management goals.  Our low interest rate environment makes several of these strategies even more appealing.


A charitable trust allows a donor to set assets aside for one or more charities.  There are two different types of charitable "split interest" trusts—charitable remainder trusts (CRTs) and charitable lead trusts (CLTs).  These types of trusts "split" the assets between a charitable and noncharitable beneficiary.  Which type you choose depends on your priorities with respect to estate planning and wealth preservation, how you want the charity to receive the gift, and even the types of assets you wish to donate. 


CRTs and CLTs are similar in that a portion of the assets go to the charity and a portion go to a noncharitable party of the donor’s choosing.  The key difference is when the charitable and non-charitable beneficiaries receive their payments.  With a CLT, the charity receives an income interest for a term of years or for someone's lifetime, with individuals receiving the remaining assets at the end of the trust term.  On the other hand, with a CRT, individuals receive the income interest, while one or more charities receive the remainder.  With charitable trusts, the donor can control the timing of the charitable donation, choose whether to make it in a lump-sum remainder or income stream, and decide how much their heirs can benefit from the income or remainder.


A type of charitable giving program, a donor-advised fund, can be used in conjunction with split interest trusts to easily benefit more than one charity or to preserve the ability for donors to be flexible and cost-efficient if their charitable giving priorities shift.  This strategy is implemented by directing the proceeds from a charitable trust—whether the interest payments from a CLT or the remainder from a CRT—to a donor-advised fund, rather than to a different, specified charity. Because the donor retains privileges over how donor-advised fund assets are distributed, the donor can recommend a charity at a later date or change his or her mind about charities previously chosen.  With a donor-advised fund, the donor can also advise how the assets are invested and the timing and amount of the distributions to the recipient charities.  



Please note that the information contained in this newsletter is provided for informational purposes only and should not be construed as legal advice on any subject matter.  If you wish to discuss the topics addressed in this newsletter, or other estate planning issues, please contact Lara M. Sass, PLLC.  As always, we are available to address any questions or concerns you may have, and to initiate and coordinate any planning you may wish to undertake while there is still time.


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