Attorney Maria Baler discusses Estate Planning for Digital Assets in a detailed video that covers things you should consider as you plan out your digital legacy. Please watch and if you have any questions or want to learn more please call us at 781 461-1020.
Too Much Togetherness: Divorce and Estate Planning in the Time of COVID-19
Among the tales of unfortunate fall-out from COVID-19 are those I hear from my family law colleagues about the number of couples deciding to divorce. Not surprisingly, three months of home confinement with your spouse will bring some clarity to how compatible two people really are. For those who are going through a divorce or divorce mediation, or those advising them, it is important not to lose sight of the importance of an up-to-date estate plan amidst the emotional and legal challenges a divorce brings.
During divorce proceedings, an automatic restraining order applies that prohibits either spouse from selling or transferring assets or changing the beneficiary on life insurance and retirement accounts except as permitted by Court order or agreement of the other party. Although asset ownership and beneficiary changes may not be made until after the divorce judgment issues, an important interim step for divorcing parties is to create updated Powers of Attorney for legal and financial decision-making, and Health Care Proxies for health care decision-making, so that a trusted individual, and not an estranged spouse, will make those types of decisions in the event of incapacity during the pendency of the divorce.
The law does provide some assistance in “modifying” an estate plan after divorce, although the result may not be what the divorced person intends. In Massachusetts by law, a divorce judgment revokes any disposition of property to the divorced person’s former spouse, including trust provisions, beneficiary designations as to life insurance and retirement plans, transfer-on-death accounts, and any other revocable disposition. If estate plan documents named the former spouse or family members of the former spouse as a fiduciary – such as a Personal Representative (formerly Executor) or Trustee – those designations are treated as if the former spouse predeceased the divorced person. Although these provisions may seem to do the trick, in reality they can wreak havoc on an estate plan and create unintended consequences. In addition, in the event a divorced person intends to benefit their former spouse with life insurance or some other asset, steps must be taken to ensure that designation will stick after the divorce occurs.
Once a divorce is final, each party should review their existing estate plan and beneficiary designations with the help of an experienced estate planning attorney, and make any changes that may be necessary. For example, for a couple with young children, a Trust may be appropriate to manage a divorced parent’s assets for the benefit of those children if that parent were to pass away during a child’s minority. Naming someone that a parent trusts to manage and apply the Trust assets appropriately for the minor children is of the utmost importance for a single parent. If a Trust is not created, the children’s guardian/conservator will have responsibility for managing any assets inherited by the children, and that person is likely to be the children’s surviving parent. For most divorced couples, the idea that a former spouse will have control over the inheritance left to the children is unsettling and inconsistent with their intentions. An estate plan that addresses divorce-related issues can ensure this does not happen, and that the divorced parent’s wishes will be carried out.
And let’s not forget that many divorced people go on to find love again. Estate planning for blended families is just as important. Re-marriage brings its own set of estate planning challenges, especially if the parties have children from prior marriages or relationships. In such a case, good estate planning is crucial to ensure that if one member of the new couple dies, his or her children from a prior marriage will be provided for appropriately, while the new spouse or partner is also provided for if they do not have sufficient means of their own. It is unfortunate when all of a parent’s assets pass to the new spouse, who then leaves them to his or her own children or family members at death, leaving the deceased’s children with nothing.
Whether divorce is a sad event or a welcome new beginning – or maybe both – estate planning is more important than ever during and after a divorce, to avoid unintended results and ensure children and other family members will benefit as you intend.
Remote Notarization Is Here!
For those of you hoping to sign your estate plan documents from the comfort of your home, we have some good news to report. After weeks of hard work by a number of Massachusetts attorneys including our own Abigail Poole, we finally have a law that will allow notaries to acknowledge signatures via video conference. On Monday, Governor Baker signed the Virtual Notarization Act into law, a temporary measure effective only during and for three days after the current COVID-19 state of emergency. This law permits attorneys (or paralegals under the supervision of attorneys) to notarize estate planning and real estate documents remotely using video conferencing, without being in the physical presence of those signing the document.
There are many technical requirements that must be followed in order for the document to be validly notarized, including:
- the signers must state on the video that they consent to the session being recorded
- the notary and all witnesses must observe the signing via video conference
- all parties be physically located in Massachusetts at the time of the signing
- the signers must disclose who is in the room with them and provide visual evidence on the video of everyone who is physically present in the room with the signers
- the signers must present their identification to the Notary during the video session and must send a copy of that identification to the Notary
- the video conference must be recorded and retained for 10 years
- the documents being notarized must contain special language stating that they were notarized in this manner
- a separate affidavit be completed and signed by the Notary regarding the session
- the documents must be returned to the Notary for notarization before they are complete and effective
- real estate documents signed in this manner require a second video conference between the Notary and the signer after the documents are received by the Notary before they can be validly notarized.
Although we are happy to have this option for clients who are unable to leave their homes or do not wish to do so, our curbside signings – variously referred to as “Car Hop” signings or “Wills on Wheels” – are also a popular and efficient way to sign documents in this time of physical distancing.
Maria Baler, Esq. is an estate planning lawyer and elder law attorney and partner at Samuel, Sayward & Baler LLC, a law firm based in Dedham. She is also a former director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA), and currently serves on the Board of Directors of the Massachusetts Forum of Estate Planning Attorneys. For more information, please visit www.ssbllc.com or call (781) 461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.
April 2020
© 2020 Samuel, Sayward & Baler LLC
Five Answers to Your Estate Planning Questions in Uncertain Times from An Estate Planning Attorney
In light of the COVID-19 pandemic, many people have questions about what will happen if they get sick or pass away. As estate planners, these are questions we think about and answer every day. Our goal as estate planning attorneys is for everyone to have an updated estate plan that will ensure you and your family are taken care of in the event of illness or death. However, there are many folks for whom estate planning has not made it to the top of their To Do list. Here are five answers to many of the questions we are hearing (over the phone and online), and some steps you can take in the short run to give yourself some peace of mind.
- If I am hospitalized, who will decide what type of treatment I receive?
If you are able to make and communicate your own health care decisions, the doctors will look to you to make those decisions for yourself. If your illness is such that you are no longer able to make or communicate your own decisions, and if you have signed a Health Care Proxy, the doctor will look to the Health Care Agent you named in that document to make health care decisions for you.
Hopefully, if you are hospitalized, you already have a Health Care Proxy. If you do not have a Health Care Proxy, consider downloading, printing and completing the Massachusetts Health Care Proxy form here, and follow the instructions carefully. When the form is completed and signed, give a copy to your primary care physician and to each of your health care agents.
If you do not have a Health Care Proxy and your illness makes it impossible for you to create one, your family or the medical facility where you are resident may need to ask the Court to appoint a guardian for you. Your court appointed guardian would have the legal authority to make health care decisions on your behalf.
If you name a Health Care Agent in a Health Care Proxy, take the time to communicate your health care wishes to your Health Care Agent. There are many online tools available to facilitate these discussions. You can find a lot of good information and tools that will help you create a Health Care Proxy and discuss your health care wishes with your Health Care Agents on the Honoring Choices website. Additional tools can be found on the website of the American Bar Association’s Commission on Law and Aging. For discussions about end of life care, check out the Conversation Project.
- Who will make financial decisions for me if I can’t make them for myself?
Financial decision-making is an important part of our daily life. If you are unable to make these decisions yourself, you will need someone to pay your bills, file your income tax returns, manage your investments, sell or mortgage real estate, take distributions from your retirement accounts, and a variety of other things that arise on a daily basis. A Power of Attorney designates a person to handle financial matters on your behalf. The designee is called your attorney-in-fact. Many people name their spouse or an adult child as their attorney-in-fact. A so-called “durable” Power of Attorney permits action even after the person who created the document becomes incapacitated.
The law requires that the Power of Attorney specifically authorize the actions your attorney-in-fact may undertake on your behalf. For this reason, Powers of Attorney are typically drafted by an estate planning attorney who will tailor the powers granted to address your particular situation.
If you do not have a Power of Attorney and you become incapacitated, your family may petition the court to appoint a Conservator for you. A court-appointed conservator will have the legal authority to manage your financial affairs under court supervision.
- If I die and do not have a Will, what will happen to my assets?
If you pass away and have not signed a Will, the distribution of your assets depends on how your assets are owned, or whether a beneficiary has been designated to receive that asset at your death.
Assets that are jointly owned with another person (for example, your home that is owned jointly by you and your spouse) will (usually) pass automatically to the surviving joint owner.
Assets for which a beneficiary is designated (for example, your life insurance policies and retirement accounts) will be paid to the beneficiary you have designated to receive that asset at your death.
While joint ownership can seem like an easy way to ensure a person receives an asset at your death, keep in mind that adding a joint owner to an asset carries with it tax, ownership, liability and other implications, and should not be done before consulting with an attorney. Beneficiary designations are also best made in consultation with your estate planning attorney to ensure the designations do not disrupt the other provisions of your estate plan.
If you do not have a Will, for assets owned in your individual name without a joint owner or beneficiary, those assets will be distributed at your death according to the Massachusetts intestate laws.
If you are married, all of your assets will pass to your spouse if (a) you have no children or parents living, or (b) all of your children are also your spouse’s children, and your spouse has no children that are not your children.
If you are married and have no children, but you have parents living, your spouse will receive $200,000, plus three-quarters of the remaining assets, and your parents (or your surviving parent) will receive the rest.
If you are married and you have children who are also your spouse’s children, and either you or your spouse has a child who is not your spouse’s child, your spouse will receive $100,000, plus one-half of the remaining assets, and your children will receive the rest.
Without a Will, if you are not married, all of your assets will go to your descendants. If you have no descendants, all of your assets will go equally to your parents, or to your surviving parent. If you have no descendants or surviving parents, your assets will go to your siblings.
If a person is under the age of 18, any assets they inherit cannot be legally owned by them. The court will appoint a Conservator to manage those assets for the minor’s benefit until the minor reaches age 18, at which time the minor will receive ownership of the assets.
- What will happen to my minor children if I pass away?
If you don’t have a Will appointing a Guardian for your minor children, the court will appoint a Guardian who will have physical custody of your children, make decisions about where your children will live and go to school, their religious upbringing, and also make health care decisions for them.
If you have a Will, your Will will name the people you wish to be appointed as Guardian of your children. In all cases, the Court will determine who to appoint as Guardian based on what the Court determines is in the best interests of the child at the time.
Parents of minor children should also have a document that appoints a temporary guardian who will have authority to take temporary physical custody of a child until the permanent Guardian can be appointed by the Court.
If you have young children, consider creating a letter of instruction that provides important information about each child – the name and contact information for the child’s physician, allergies, other important medical information, food preferences, schedule, friends, activities, and other things you think someone should know if they had to care for your child unexpectedly.
- Where will my family begin if something happens to me?
One of the most important things you can do is get organized. Take the time to identify a place in your house where you keep important information and documents and let trusted family members know where that is. Consider a well-organized filing cabinet with clearly labeled folders and treat that as your estate planning repository. Include copies of your legal documents such as Wills, Trusts, Powers of Attorney and Health Care Proxies, as well as the contact information for your estate planning attorney, accountant and financial advisors. Also included should be recent account statements, life insurance and homeowner’s insurance policies, retirement account information, etc.
Compile and include a list of your assets (bank accounts, investment accounts, annuities, life insurance, retirement accounts, etc.) that includes the institution where each account is located, the account number, your contact person at that institution (if any) and their contact information. Also include a list of usernames and passwords for any important online accounts – financial, photo storage, email, social media, document storage accounts. Keep these lists updated and in the place where you keep other important papers so that they can be found.
If you have a safe deposit box, make sure at least one other trusted family member’s name is on the box so that they will have access after your death. This is especially important if your original Will or other estate plan documents are in the box.
A comprehensive estate plan drafted by an estate planning lawyer will address all of these issues – name guardians for your children, specify how your assets will be distributed at your death, designate decision-makers for financial and health care decisions if needed, and so much more. If you are concerned about not having legal documents in place, contact an estate planning attorney. Resist the urge to create these documents yourself. Whether on the back of a napkin or online at Legal Zoom, there is no substitute for the advice of an experienced attorney who will provide advice tailored to your particular family situation, your assets, and the tax and probate laws of your state of residence. If you are feeling concerned about the state of your estate plan, or lack thereof, give your local estate planning attorney, including our office, a call – we are here to help.
Maria Baler, Esq. is an estate planning lawyer and elder law attorney and partner at Samuel, Sayward & Baler LLC, a law firm based in Dedham. She is also a former director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA), and currently serves on the Board of Directors of the Massachusetts Forum of Estate Planning Attorneys. For more information, please visit www.ssbllc.com or call (781) 461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.
April 2020
© 2020 Samuel, Sayward & Baler LLC
Coronavirus Update & Remote Estate Planning
Dear Clients, Colleagues and Friends,
We hope this finds you all well and safe! As promised, we want to give you an update on our plans in light of Governor Baker’s emergency order of this morning.
We are and will continue to be “open” for business as we are well-equipped to work remotely, including meeting with clients by phone or video conference. However, in compliance with the Governor’s order, we closed our physical office beginning Tuesday, March 24 at noon until Monday, May 4th (assuming we are permitted to re-open at that time), which means we will not be able to physically meet with clients to sign documents during that time.
We want you to know that we are here to help you. You are welcome to reach out to any of us by phone or email at any time. If you would like to schedule a time to speak or video conference with us, please email Jennifer Poles (poles@ssbllc.com) or Lynne Abe (abe@ssbllc.com) or call the office at 781-461-1020.
In other news, Attorney Abigail Poole of our office has been involved with proposed legislation, supported by hundreds of attorneys statewide, to allow attorneys who are notaries to conduct meetings to sign documents in a virtual manner via video conference. Keep an eye out for information about how you can support this effort by contacting your legislators.
We will continue to keep you updated as the situation evolves, and continue to wish you and your family health and safety during these uncertain times.
Suzanne R. Sayward
Maria C. Baler
Julia K. Abbott
Abigail V. Poole
An Important Note to Our Clients and Partners
Dear Clients and Friends,
As you may imagine, given our line of work, our client’s health and safety is our top priority.
You have no doubt been hearing about the spread of Coronavirus (COVID-19) which has been officially declared a pandemic by the World Health Organization. Many cases have now been confirmed in Massachusetts and Governor Charlie Baker has declared a state of emergency.
We understand that this virus has put many of our clients in a difficult situation, especially those who are older or have older loved ones at home.
Here are the preventative measures we are taking to keep our office environment as clean as possible, and to allow us to keep our clients and our staff safe while continuing to conduct business:
– We will practice social distancing, which includes the elimination of hand shaking.
– We wipe down all door handles, chairs, and conference tables after every meeting and have hand sanitizers and tissues available in every conference room.
– We will shortly have the ability to conduct meetings via video conference for anyone who wishes to do so. As always, if you would like to speak by phone, we are available to do so.
– We will postpone our upcoming Smart Counsel event scheduled for March 19, 2020, to be rescheduled at a later date.
If you have questions or concerns about an upcoming meeting at the office in Dedham, please call us to discuss other options for your meeting.
We will also take this opportunity to remind you to make sure your health care and other estate planning documents are in place and updated to reflect your current wishes. If you would like to schedule a meeting, phone call, or video conference to discuss your estate plan, please be in touch with Jennifer Poles at 781-461-1020 or poles@ssbllc.com.
Our office is currently open and will remain open as we closely monitor the situation in Dedham and the surrounding communities. We will keep you updated if anything changes. In the meantime, please don’t hesitate to reach out to us with any questions or concerns.
Sincerely,
Suzanne R. Sayward
Maria C. Baler
Julia K. Abbott
Abigail V. Poole
Ask SSB
Q: I have left each of my grandchildren $10,000 in my Will. A friend recently told me this will cause a problem for my grandson Jared who has Down Syndrome. Is this true?
A: It is quite possible that Jared’s receipt of $10,000 from your estate following your death could create a problem for him. The reason is that individuals with disabilities such as Down Syndrome are often eligible for valuable governmental benefits and services. However, many of these benefits are ‘needs based.’ That means that in order to be eligible for the benefit or service, the individual can have only limited assets and income. A person who receives a gift of money or property may lose his eligibility, and may need to spend that money on services before he will be eligible again. That does not mean that you need to exclude Jared from your Will. A supplemental needs trust can be used to hold or receive money for a person with a disability to ensure that those valuable governmental benefits are not lost, while allowing the trust funds to be used for the benefit of the disabled person to pay for things his benefits may not cover. You should discuss this with your estate planning attorney to be sure you are doing the right thing for your grandson.
Five Taxes your Heirs May Pay (or not) After your Death
Most people understand that estate planning and inheritance planning involves making sure that people you trust can make decisions for you if you become incapacitated during your lifetime, and making sure your assets go where you want them to go when you die. It should also involve identifying and planning to minimize the five different types of taxes that may be payable by your heirs after your death.
- Federal Estate Tax – When a United States citizen or resident passes away, the estate of the deceased person may be required to file a federal estate tax return and may have to pay a federal estate tax. The estate tax is a one-time tax that is payable after death on the value of your “estate”, which is essentially any assets you own or control at the time of your death. A federal estate tax return is due on the nine-month anniversary of the deceased’s date of death, and any estate tax due must be paid by that time to avoid interest and penalties from accruing.
The good news for most people is that the federal estate tax exemption is $11.58 million as of January 1, 2020 ($11.4 million in 2019). This means that if the value of the assets you own at the time of your death (your so-called “taxable estate”) is less than the exemption amount, you do not have to file a return or pay a federal estate tax. Estate tax is also not payable on the value of assets left to your surviving spouse or to charity. The federal estate tax exemption is adjusted annually for inflation. On December 31, 2025, the federal tax law that gave us such a large federal exemption amount will “sunset” unless Congress takes action. Upon sunset, the federal estate tax exemption amount will revert to the prior level, adjusted for inflation, most likely a little more than $5 million.
If your “estate” is greater than the federal estate tax exemption, speak to your estate tax planning attorney and tax advisors about planning steps you can take to reduce or eliminate any federal estate tax your estate may have to pay. Don’t forget about trusts when it comes to estate tax – certain type of trusts, as well as gifting strategies, including charitable giving, can be effectively reduce the estate tax payable at death.
Keep in mind that even if you do not owe federal estate tax at death, it may still be advisable for the Personal Representative of your estate (formerly known as your Executor) to file a federal estate tax return so that your surviving spouse’s estate can take advantage of your unused federal estate tax exemption.
- State estate tax – If you live in Massachusetts, you live in one of 18 states plus the District of Columbia that has a separate state estate or inheritance tax. If you die a Massachusetts resident, your estate must file a Massachusetts estate tax return if the value of your estate is $1 million or more. This is a relatively low threshold. For many residents of Massachusetts who own a home, have a retirement account of significant value, and own life insurance, this is a tax they should be aware of and plan for.
There are several bills pending in the state legislature that would raise the Massachusetts estate tax exemption amount, however none of them has succeeded to date. Until the exemption amount is increased, as with the federal estate tax, the Massachusetts estate tax can be reduced if not eliminated with thoughtful estate tax planning with the advice of your attorney. As with the federal estate tax, a Massachusetts estate tax return must be filed and any tax paid within nine months after death.
- Personal Income Tax – No matter what time of year you pass away, final state and federal income tax returns will have to be filed to report the income you earned or received during the year of your death from January 1 through the date of your death. It is important to keep good records of your income and deductions, and to keep your tax records organized, so that your heirs or others who are settling your estate will be able to provide your tax preparer with the information necessary to prepare your final personal income tax returns, and so that those returns can be filed timely to avoid penalties and interest that may accrue and be payable by your estate.
It is also important to keep your personal income tax filings up to date while you are alive. Collecting information necessary to file the deceased’s final personal income tax returns is hard enough. Trying to reconstruct past years’ records in order to file returns that are past due is difficult, time consuming, and can be very expensive when interest and penalties for unpaid taxes start to add up. Keep in mind that the Personal Representative of your estate can be personally liable for any unpaid tax liabilities. This is not a legacy anyone should leave.
- Fiduciary Income Tax – The fiduciary income tax is a little-known income tax payable by estates and trusts on income earned during the year. For example, if you die owning 1000 shares of Exxon stock and a three-family rental property, those assets are part of your “estate” at your death. The dividend income received on the Exxon stock and the rental income paid by the tenants residing in your rental property after your death is “income” earned by your estate. This income must be reported on a fiduciary income tax return each year your estate remains open. If these assets are owned by a trust, income earned on trust assets is also reported on a fiduciary income tax return.
Fiduciary income tax can be very steep, considering that the tax brackets are such that estates and trusts reach the highest federal income tax bracket of 37% at only $12,750 of income. To avoid paying unnecessary fiduciary income tax, it is best to plan with your attorney to ensure your estate will be administered efficiently, and that any trust you create is structured properly with tax savings in mind, even if assets will stay in trust for the benefit of your heirs.
- Income Tax on Retirement Accounts– The government kindly allows us to save money in our retirement accounts – IRAs, 401ks, 403bs – without paying federal or state income tax on the funds contributed to those accounts. The end result is that many people have large “qualified” retirement accounts on which income tax has never been paid.
The tax laws require money to be withdrawn from retirement accounts, and state and federal income tax paid, when we reach a certain age, or within a certain period of time after the account owner dies. The SECURE Act, signed into law by President Trump just before Christmas as part of the budget bill, makes significant changes to these rules.
If you have large retirement accounts, it is important to understand the changes made to these tax rules by the SECURE Act, how much your beneficiaries will have to withdraw from these accounts and when, and to plan to minimize the income taxes payable on those distributions if possible. This is not as easy as it used to be now that the SECURE Act is law; however, there are still planning options to consider that can have a big impact on how much of those accounts may be lost to income taxes after your death.
Death and taxes (and estate tax and income tax planning!) are not most people’s favorite topic (present company excluded), however you can save your heirs a lot of money, and maximize the inheritance they receive, if you take the time to understand the taxes that are potentially payable at death and take steps to plan to minimize or eliminate these taxes before they become due.
Maria Baler, Esq. is an estate planning and elder law attorney and partner at Samuel, Sayward & Baler LLC, a law firm based in Dedham. She is also a former director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA), and currently serves on the Board of Directors of the Massachusetts Forum of Estate Planning Attorneys. For more information, visit www.ssbllc.com or call (781) 461-1020. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.
January, 2020
© 2020 Samuel, Sayward & Baler LLC
Ask SSB
Who Should I Name as Executor?
Q: How do I choose who to name as my Executor, Power of Attorney, Health Care Agent and Trustee? I don’t want to hurt any of my children’s feelings.
A: It can be hard to decide who to name to these roles, especially if you think a child will be upset if not chosen. While you don’t want to make a child feel slighted, the duties and obligations of the executor of your Will (now called a Personal Representative), Attorney-in-Fact under your durable Power of Attorney, and your Health Care Agent are substantial and you must appoint a person who can carry out the responsibilities that each role entails. If you create a Trust as part of your estate plan, be aware that the duties and responsibilities of a Trustee are many and varied. The roles of Personal Representative, Trustee, and Attorney-in-Fact require a person who is well-organized, not a procrastinator, and willing and able to move a project forward to a conclusion. He or she should be able to work well with others, such as attorneys and accountants, and also get along well with family members and keep them informed. Most importantly, these roles require someone who is absolutely trustworthy.
Your Health Care Agent should be someone you are comfortable speaking with about your health care wishes and who you can trust to carry out your instructions. Your health care agent should be able to communicate with your health care providers, not be afraid to ask questions or request explanations, and be able to advocate for you as necessary.
In complex situations or where significant discord between family members is expected, a non-family member may be the best choice. In any event, you should discuss your concerns with an experienced estate planning attorney who will help you make the right choices.
Taking the Mystery Out of Gift Giving
We are often asked about the tax rules around gift-giving, especially as the end of the year approaches. These tax rules are governed by the federal gift and estate tax system, which is wholly separate from the income tax system. There is no Massachusetts gift tax.
If you give a gift, the money you give is not income taxable to the recipient, nor is the gift tax-deductible by you (the person who makes the gift, who we’ll call the “donor”), unless it is made to a qualified charity.
Federal gift tax, if any, is paid by the donor, not by the recipient. For federal gift and estate tax purposes, under current law every US citizen has a combined $11.4 million exemption (in 2019) from gift and estate tax. This means that each person can give up to $11.4 million to others, either during their lifetime or at death, without paying any federal gift or estate tax. A gift tax is payable only after the donor has made combined lifetime and death time gifts of more than $11.4 million.
In addition, certain gifts are exempt from the gift tax. Exempt gifts include:
- so-called annual exclusion gifts which currently allow a person to gift $15,000 (in 2019) to any number of people in any calendar year,
- unlimited gifts to a spouse (provided the spouse is a U.S. citizen),
- unlimited gifts to qualified charities, and
- unlimited payments of health care expenses or tuition for another as long as those gifts are paid directly to the educational institution or health care provider.
These exempt gifts do not require the donor to file a federal gift tax return. If a donor makes a non-exempt gift, a federal gift tax return must be filed, even if no gift tax is payable, to track how much of the donor’s gift and estate tax exemption has been used.
The gift tax is complicated, but for most people who want to make gifts to children or grandchildren, the gift tax will not be an issue. If you wish to make a non-exempt gift, it is best to consult with your estate planning attorney and accountant before making the gift so that issues such as timing, and estate, gift and capital gain tax implications can be thoughtfully considered prior to making the gift.