Estate planning can feel overwhelming, but it doesn’t have to be. In our recent webinar with Marci Tempesta, Special Counsel at Milbank, LLP, we explored the key steps to take control of your future. From the basics of drafting a will to the benefits of charitable giving, Marci answered a range of important questions. Whether you’re just getting started or revisiting your plan, these expert insights will help you make informed decisions for yourself and your loved ones.
Please note: The following information is not estate planning or tax advice. Please seek professional support for advice on your unique situation. For more information on estate planning, please click here.
Q: What is estate planning?
A: Estate planning is the process of protecting your family by deciding who will inherit your assets and how you wish for them to be distributed, typically done through a will.
Q: What is a will?
A: A will is a legal document where you can outline your wishes about the distribution of your assets after you’re gone, as well as appoint people you trust to carry out your wishes. As your circumstance change, you can change your will whenever you need to.
Q: Why do I need a will?
A: Having a will can help avoid confusion and potential conflicts among your loved ones, giving you peace of mind knowing your wishes will be followed. Without one, state laws determine what happens to your assets, which may not align with your intentions.
Q: When should I update my will?
A: It’s a good idea to review your will every five years or so. But also, whenever there are big changes in your life, like getting married, divorced, having kids, or becoming a grandparent, it’s wise to ensure your will reflects your current situation and wishes.
Q: What about a living will and a health proxy?
A: A living will expresses your wishes for medical treatment in case you become incapacitated. Meanwhile, a health care proxy appoints someone to make medical decisions on your behalf if you’re unable to do so. Marci advises having both documents to ensure your preferences are respected during times of incapacity. You can find further guidance from the National Hospice and Palliative Care Organization.
Q: Are there other documents that are good to have?
A: Besides a will, there are two important documents worth considering. Firstly, a document that outlines your wishes for your physical body after death, as wills are often discovered too late, after you have already been buried or cremated. Secondly, you can consider assigning a general power of attorney to handle your financial decisions if you’re unable to do so.
Q: Are there taxes imposed on gift transfers?
A: Yes, both at death and during lifetime, there’s a federal estate and gift tax levied on transfers to others. Additionally, a generation-skipping transfer tax applies to transfers to individuals of a generation equivalent to grandchildren. These federal transfer taxes are set at a high rate of 40%.
Q: Are there exemptions to those taxes?
A: Yes, there are several exceptions to estate taxes. For instance, transfers to a US citizen spouse or to a qualifying trust for their benefit are exempt from estate tax due to the marital deduction. Transfers to charity are also exempt from estate tax. There’s also an annual exclusion allowing individuals to give a certain amount per person each year, currently set at $18,000 per person or $36,000 for married couples.
Q: What are the tax benefits of making a gift to a nonprofit like Sanctuary?
A: Making lifetime gifts to charities can have significant tax advantages. You can receive income tax deductions for charitable contributions made from your after-tax income. Additionally, donating marketable securities, like stocks, provides a deduction for the fair market value of the shares, while helping you reduce capital gains taxes. Nonprofits like Sanctuary benefit from these gifts and enjoy favorable deductibility rules. It’s always advisable to connect with your tax advisor to understand your specific situation.
Q: What is a donor-advised fund and why would I use one?
A: A donor-advised fund is a useful option for many reasons. For example, if you’re dealing with significant tax events and want to give to charity without deciding on the recipients right away, a donor-advised fund may be a useful tool. You will receive an immediate tax benefit while having time to distribute funds to charities over time. Contributions to these funds are also exempt from gift and estate tax, providing more financial benefits.
Q: Can I use my IRA to make a gift?
A: Yes, you can use distributions from your IRA to make charitable gifts. Funds withdrawn from your IRA are subject to income tax, just like any other income source. You can then donate the net amount to charity, similar to income earned from salary or stock sales.
Q: What if I don’t want to take my IRA distribution? Can I divert some of it to charity directly?
A: Absolutely, if you’re 70 ½ or older, you can redirect up to $100,000 of your IRA to charity annually. This amount is excluded from your gross income, providing a tax-efficient giving option. Additionally, if you’re at least 73, your qualified charitable distribution can satisfy your required minimum distribution (RMD), potentially allowing you to donate your entire RMD to charity if it’s less than $100,000 per year.
Q: What is a pour-over will and a revocable trust, and do I need them?
A pour-over will transfers assets not in a living trust to the trust upon the creator’s death to ensure they’re distributed according to the trust’s terms. However, assets moved by a pour-over will still go through probate.
A revocable trust lets you bypass probate by transferring assets during your lifetime, ensuring seamless management and privacy in case of incapacity or death. It also encourages asset organization, easing the process for your heirs later on, and ensures your assets go where you want them, protecting against outside influence. Trusts also provide benefits like creditor protection, making them valuable options for many people.
P.S. Have you already created a gift in your estate plans to Sanctuary for Families? Please let us know so we can thank you and add you to our list of our growing community of Legacy Society members. Contact us at donations@sffny.org.