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Can You Avoid Filing Estate Tax Returns With Last-Minute Gifting?

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“I can avoid estate taxes by making last-minute gifts before I die, right?” When this question arises in a client meeting, I have the unfortunate responsibility of uttering the words just about every attorney has said at least once in her career: “It depends.” In Massachusetts, estate tax is a crucial consideration for my clients with substantial assets. If a person dies in Massachusetts with a gross estate valued at $2 million or more, an estate tax is imposed. The gross estate consists of the value of assets owned by the deceased such as real estate, bank accounts, investment accounts, business interests, retirement assets, life insurance, and tangible personal property, among other assets, at the time of death. Importantly, adjustable taxable gifts are also added to the gross value when calculating estate tax returns, and can be a trap for the uninformed.

An adjustable taxable gift is a gift a person makes during his or her lifetime that exceeds the annual gift tax exclusion amount ($18,000 for 2024). For example, if Joe gifted $118,000 to his sister in April, Joe would need to file a gift tax return for $100,000 which is the amount over the annual gift tax exclusion ($118,000 – $18,000 = $100,000). If Joe then died in May with a gross estate of $1,990,000, it would appear he is under the $2 million threshold and does not need to file an estate tax return or pay taxes. Herein lies the trap! Joe’s gross estate value plus the adjustable taxable gift value exceeds the $2 million threshold when added together ($1,990,000 +$100,000 =$2,090,000). This means Joe’s estate must file an estate tax return.

While Joe’s estate must file an estate tax return, the estate will not have to pay estate taxes under the newly revised Massachusetts estate tax law. Note that this would NOT have been the case in prior years.

In 2023, Massachusetts increased the threshold at which estate tax is due to the Commonwealth from $1 million to $2 million for estates of decedents dying on or after January 1, 2023. In addition to increasing the exemption amount, the new law eliminates the so-called ‘cliff’ that existed under the old Massachusetts estate tax law. Under the old Massachusetts estate tax law, excess gifts that reduced the taxable estate to below the then $1 million threshold, did NOT eliminate the Massachusetts estate tax.

Thanks to this change in the Massachusetts law, gifting is now a better option than it was under the old law to achieve estate tax savings.

At Samuel, Sayward & Baler LLC, a knowledgeable attorney will guide you through the gifting options applicable to you to carefully plan how to minimize the impact of estate taxes on you and your loved ones.

Attorney Abigail V. Poole is a senior associate attorney with the Dedham firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of trust and estate planning, estate settlement and elder law matters. She is an active member and current Past President of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (NAELA). 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. For more information visit ssbllc.com or call 781/461-1020.
January, 2024
© 2024 Samuel, Sayward & Baler LLC

 

Get Ready Small Business – the Corporate Transparency Act is Coming for You. Five Things to Know about the CTA

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The Corporate Transparency Act (CTA) is a federal law passed in 2021 intended to reduce money laundering and tax fraud – noble goals. In order to achieve these goals, the federal government is going to require all ‘entities’ (other than those that are exempt…a story for another day) to file an annual report with the Financial Crimes Enforcement Network (FinCEN) disclosing detailed information about the entity and the individuals associated with it. The government expects over 32 million initial reports to be filed at an estimated cost of about $22 billion, plus an additional $2 billion each year for updated reports.

Read on for 5 Things to Know about the CTA.

1. Who has to Report?

Business entities that are required to report are called reporting companies. These include corporations, limited liability companies (LLCs), and other entities created or registered by filing a document with a secretary of state or similar state office.

Keep in mind that ‘business entities’ such as LLCs are often used as part of an estate plan especially if rental or commercial real estate is owned. Those LLCs fall within the scope of the CTA and must comply with the reporting requirements.

2. What Information is Required?

Reporting companies created before January 1, 2024, must provide information about the company and its beneficial owners. Reporting companies created on or after January 1, 2024, must provide information about the company, its beneficial owners, and its company applicants.

A. Company Information

The reporting company must provide its name and any alternative names, the address of its principal place of business, the state of formation, and its taxpayer identification number.

B. The Identities of the “Beneficial Owners”

A beneficial owner is anyone who owns at least 25 percent of the reporting company or ‘exerts substantial control over it.’ Each beneficial owner of a reporting company must furnish their full legal name, date of birth, residential address, and an identification number from a driver’s license, passport, or other state-issued identification (ID), along with a copy of the ID document.

Note that while a trust is not a reporting company, it may be subject to reporting information as a beneficial owner if ownership interests in a reporting company are held in trust.

C. What is a “Company Applicant?”

A company applicant is the person who files the business entity’s creation documents, as well as the person who directs this action. This could include the business owner(s), a lawyer, a CPA, other advisors, and potentially their assistants and staff. A company applicant is required to submit the same information as a beneficial owner.

3. What are the Deadlines for Filing?

Entities created prior to January 1, 2024, have until January 1, 2025, to file an initial report; reporting companies created after January 1, 2024 and before January 1, 2025, will have 90 days after creation to file an initial report. Entities created on or after January 1, 2025 will have 30 days to submit an initial report to FinCEN.

This is not just a one-time reporting requirement. A company, beneficial owner or company applicant must report any changes to reported information to FinCEN. For updates, the 30 days start from when the relevant change occurs. For corrections, the 30 days start after becoming aware of, or having reason to know of, an inaccuracy in a prior report. There are no safe harbors for filing an incorrect report.

4. What Happens if a Report is not Timely Filed?

The penalty for failure to file is up to two years in prison and $10,000.

5. How do you file a report?

The reports must be filed electronically via the FinCEN website.

There is a possibility of at least temporary relief for small businesses in the form of a bill entitled ‘The Protect Small Business and Prevent Illicit Financial Activity Act (H.R.5119)’ which was passed by the House and is currently before the Senate. If passed, this bill would extend the deadline for existing companies to January 1, 2026. The deadline for companies formed on or after January 1, 2024 to file their initial report would be codified as 90 days; and the deadline for companies to report changes in their reports would be extended from 30 to 90 days.

If you have a small business that is an LLC, a corporation or other registered entity, you should consult with your business attorney about your filing duties. If you have an LLC or other entity for liability protection or as part of your estate plan, we recommend you consult with your CPA to discuss your reporting obligations and the steps needed to achieve compliance.

Attorney Suzanne R. Sayward is a partner with the Dedham law firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. She is certified as an Elder Law Attorney by the National Elder Law Foundation, a private organization whose standards for certification are not regulated by the Commonwealth of Massachusetts. 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. For more information visit our website at www.ssbllc.com or call 781/461-1020.
January, 2024
© 2024 Samuel, Sayward & Baler LLC

 

Who are My Heirs?: Understanding How Your Relatives are Treated Under the Law

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Blended families bring together unique dynamics and diverse relationships. As wonderful as these unions can be, they introduce complexities when it comes to estate planning and inheritances. Blended families often consist of spouses with children from previous marriages or relationships.

We often get questions about whether certain relatives can inherit from an estate, such as a stepchild, a son-in-law, or a child who is a part of the family but isn’t legally adopted. How are these relatives treated under Massachusetts law and what should you consider when you are doing your estate planning?

Massachusetts, like many states, has laws governing intestate succession that determine how your estate is distributed when there is no valid Will. Heirs at law are those individuals who are entitled by law to receive your property after your death if you do not have a Will. The order of inheritance prioritizes the surviving spouse, children, parents, and other close relatives.

  • Surviving Spouse: If a married person dies intestate and with children, and all of the children are children of the marriage, then the married person’s entire estate will pass to the spouse. However, if either spouse has a child from a prior marriage or relationship, then the amount passing to the surviving spouse is the first $100,000 plus 50% of the remaining probate estate. If a married person dies intestate and does not have children, but has at least one surviving parent, then the estate is divided between the surviving spouse and parent(s).

  • Unmarried Partner: An unmarried partner, regardless of the length of the relationship, does not have automatic inheritance rights if there is no Will that provides for the partner.

  • Biological and Adopted Children: If an unmarried person dies intestate and has children, then the entire estate will pass to the surviving children. An individual is the child of his/her natural parents regardless of their marital status. A legally adopted individual is the child of his or her adopting parents and will inherit the same as if they were a biological child.

  • Stepchildren: A stepchild is not considered an heir at law unless the child was legally adopted by the stepparent. Keep in mind that even though the child was adopted by the stepparent, the child can still inherit from or through his or her natural parent.

  • Grandchildren: A grandchild will only inherit if your child (the grandchild’s parent) dies before you. If your grandchild is not your child’s natural or legally adopted child, then the grandchild will not be considered an heir at law.

  • Parents and Siblings: If an unmarried person dies intestate and does not have children, then the estate will pass to the surviving parent(s). If the person does not have surviving parents, then the estate will pass to surviving siblings and surviving descendants of any predeceased sibling.

  • Distant Relatives: If an unmarried person dies intestate and does not have children, surviving parents, surviving siblings, or surviving nieces/nephews, then the estate will be distributed to the closest living relative, such as a grandparent, aunt or uncle, or cousin.

Life events such as marriages, divorces, births, and deaths can significantly impact your estate plan. If you have a blended family or want to provide for a grandchild or other relative within a blended family, it is important to clearly articulate your intentions and be specific in your estate plan about who receives certain assets. You should not assume that these relatives will automatically inherit from your estate. 

Estate planning for blended families requires careful consideration, open communication, proactive planning, and consulting with an experienced estate planning attorney. If you need to create an estate plan for your blended family or if you would like more information on other estate planning matters, please contact our office to schedule an appointment to meet with one of our attorneys.

Attorney Brittany Hinojosa Citron is an associate attorney with Samuel, Sayward & Baler LLC, which focuses on advising its clients in the areas of trust and estate planning, estate settlement, and elder law matters. 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. For more information visit ssbllc.com or call 781/461-1020. 

December, 2023

© 2023 Samuel, Sayward & Baler LLC

Estate Planning for the New Year

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As we move at what seems like the speed of light towards the new year, it is the perfect time to reflect on the past and set goals for the future. Beyond the usual resolutions, consider dedicating some time to comprehensive estate planning to prepare for the year ahead. This means taking proactive steps to organize your affairs and solidifying a sound financial and legal foundation for the upcoming year.

  1. Designate Beneficiaries
    One of the first steps to confirm your financial future (and your beneficiaries’ financial futures) while moving into the new year is to review and update your beneficiary designations, as necessary. This includes beneficiary designations for life insurance policies, retirement accounts, and annuities. You should ensure that the designated beneficiaries align with your current estate planning wishes, and that you have both primary beneficiaries and contingent (back-up) beneficiaries designated on those assets.
  2. Organize Documents
    Take the time to find and organize your important documents, such as your Will, Trust, Power of Attorney and Health Care Proxy. Create a comprehensive list of assets and liabilities along with bank, investment and retirement account information. It is also important to create and keep up-to-date a list of any and all accounts you have online together with the password and other access information. This can include email accounts, social media profiles, online banking, and any other platforms where you hold digital assets. Keeping your financial records in order makes it much easier for your loved ones to navigate your affairs in case of an emergency.
  3. Health Care Proxy and MOLST
    Health care decisions are crucial aspects of planning for the future. Share a copy of your health care proxy with your primary care physician and with your named health care agents and make sure they understand your medical preferences. Additionally, consider completing a Medical Order for Life-Sustaining Treatment (MOLST) form with your primary care physician if you have a terminal illness or you are in your mid- to late eighties or older.
  4. Consultation with “Support Team”
    Schedule meetings in the beginning of the year to consult with your “support team”, such as your estate planning attorney, accountant, and financial planner to review your overall financial and legal strategy in the event you become incapacitated or pass away. An attorney can help ensure your estate plan is comprehensive and appropriately reflects your current wishes, while an accountant can provide valuable insight into your tax planning for the upcoming year. A financial planner can assist in aligning your investments with your long-term goals, which becomes more and more crucial after you retire.
  5. Tell Someone!
    Having all those documents organized and in place is only helpful if one or more of your loved ones know they exist. Beyond sharing your health care proxy with your health care agent (and primary care physician), put a copy of it along with the MOLST in an easily accessible, visible location such as on the refrigerator or near your front door. It is absolutely critical that you tell a trusted individual where they can find a copy of your other estate planning documents and the contact information of your support team members so that person knows right away where to go and who to contact in the event of an emergency.

Taking the time to make sure you have a plan in place for the new year by doublechecking you have beneficiaries designated, organizing your documents, sharing your health care proxy, consulting with your support team, and telling a trusted family member or friend about all your efforts is a proactive and responsible approach. By addressing these aspects comprehensively, you will gain peace of mind and also make possible a smoother transition during unforeseen circumstances.

Attorney Abigail V. Poole is a senior associate attorney with the Dedham firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. She is an active member and President of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (NAELA). 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. For more information visit www.ssbllc.com or call 781/461-1020.

December, 2023
© 2023 Samuel, Sayward & Baler LLC

Important Numbers for 2024 Estate Tax Planning

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Important Numbers for 2024 Estate Tax Planning 

Each year around this time, the IRS comes out with the inflation adjusted federal Estate and Gift Tax exemption amounts for the following calendar year.  Here are the numbers for 2024.

2024 Federal Estate Tax Exemption

The federal estate tax exemption is the amount that each person is permitted to pass on free of any federal estate tax.  For 2024, this amount is $13.61 million per person (up from $12.92 million in 2023) which translates into $27.22 million for a married couple.  

2024 Annual Gift Tax Exclusion

The Annual Gift Tax Exclusion amount is the amount that a person may gift to any number of other individuals during a calendar year without impacting the donor’s Lifetime Gift Tax exclusion. For 2024, this amount will be $18,000 per person.  For example, a grandparent may give each of his or her five grandchildren $18,000 for a total of $90,000 during 2024 without needing to file a gift tax return (form 709) reporting the gifts and without any impact on the donor’s Lifetime Gift Tax exclusion.

2024 Lifetime Gift Tax Exclusion

In addition to the Annual Gift Tax Exclusion, each person has a Lifetime Gift Tax exclusion which is currently equal to the federal estate tax exemption – $13.61 million for 2024.  If gifts in excess of a person’s Lifetime Exclusion amount are made, tax on the excess gifts is payable by the donor (person making the gift) at the rate of 40%.  To the extent a person makes gifts over and above the Annual Gift Tax Exclusion amount, their Lifetime Gift Tax exclusion amount is reduced 

2024 Gifts to Spouses

Amounts passing to a U.S. citizen spouse either at the death of the first spouse or during lifetime in the form of gifts, pass free of federal and Massachusetts estate tax regardless of the amount.  

The same does not apply for non-U.S. citizen spouses.  When one spouse dies leaving assets to a surviving non-U.S. citizen spouse, there is no marital deduction permitted for those assets.  Since the deceased spouse may leave $13.61 million free of federal estate tax, the lack of a marital deduction does not matter for many people.

Lifetime gifts to a non-U.S. citizen spouse are limited to $185,000 (2024) per calendar year.  

What about Massachusetts? 

Massachusetts has its own estate tax system which until very recently had a $1 million threshold for taxable estates. As of October 4, 2023, we have a $2 million exemption and this is effective for estates of decedents dying on or after January 1, 2023.  This amount is not indexed for inflation so it will take another act of the Massachusetts legislature to increase it.  But still, we are grateful for the bump up to $2 million ($4 million for a married couple who undertake estate tax planning).

Keep in mind that Massachusetts does not have a gift tax.  As such, there is no limit on the amount you may give away under Massachusetts tax law. 

 If you are interested in discussing estate tax planning or creating a gifting plan, please contact our office to schedule a time to meet with one of our attorneys. 

 Attorney Suzanne R. Sayward is a partner with the Dedham firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. She is certified as an Elder Law Attorney by the National Elder Law Foundation, a private organization whose standards for certification are not regulated by the Commonwealth of Massachusetts.  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. For more information visit www.ssbllc.com or call 781/461-1020.

November, 2023

© 2023 Samuel, Sayward & Baler LLC

Commonwealth Resources for Family Caregivers and New Parents

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Attorney Abigail Poole discusses Commonwealth Resources for Family Caregivers and New Parents, for our Smart Counsel for Lunch Series. Please watch and if you have any questions or want to learn more please call us at 781 461-1020.

https://www.mass.gov/family-caregiver-support-program
https://www.mass.gov/babysteps

Wills • Trusts • Elder Law • Long-Term Care Planning • Estates

©2024 Samuel, Sayward & Baler LLP. All Rights Reserved. The information presented on this website should not be construed to provide legal advice, nor does it constitute the formation of an attorney/client relationship. Read the disclaimer.