US News & World Reports reported in “Get Ready for the Return of the Estate Tax” in November 2010 by Kimberly Palmer that the federal estate tax makes a come back in 2011. Individuals who die in 2011 will get an exemption of only $1 million, down from $3.5 million in 2009.
Bill and Melinda Gates may encourage people to give their money away to charities, but with the estate tax come back, fewer people plan to contribute to charities for tax savings, despite the positive in leaving some hunger in heirs to achieve on their own by not leaving them with all a person’s assets.
Tax strategies for the New York individual desiring to make sure as much wealth as possible end up with heirs include:
Make lifetime gifts by gifting money to family members while alive. Not only does this save on estate taxes, a person gets to watch family members use the gifts. An individual can give $1 million tax free over a lifetime, under federal law. Plus, there is $13,000 annually a person can gift to any number of people without tax. Some individuals have taken advantage of these tax savings laws by giving away their homes, cash, and other possessions to children, leaving themselves with nothing but social security. Giving everything away before death, not only saves taxes, but also shields a person from creditors when there is nothing to take. After all, creditors cannot attach a person’s social security or welfare checks.
For education or healthcare, there’s no limit on the tax-free amount an individual gives as long as it goes directly to the education or health providers. For instance, putting $13,000 per year into 529 plans to pay for future college costs of children allows a person to control the money rather than just giving cash for a child’s tuition. The owner of the money can take away the funds when s/he sees the successor is living large, spending on clothes and vacations rather than a college degree.
Another tax strategy is for a person to create an insurance trust to pay out life insurance proceeds free of income tax as long as the owner does not care not being able to change his/her mind once s/he sets up the insurance trust.
Federal and New York estate tax laws may be complicated, engage an experienced New York tax attorney to maximize estate tax savings.