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Home / Financial planning / As Time Draws Near

As Time Draws Near

September 7, 2022 by Brandon McGee

Someone close to you has little time left in this world. What can you do?  You want to do everything you can for them. You watch helplessly as they fight what you both know is a losing battle. The doctors have already written the final chapter in the story. There are planning strategies that can be taken advantage of even when time is short.

You stay with them to brighten their days, helping to bring joy and even levity into their lives. But, you want to do more. Perhaps they are concerned about those left behind. You can help allay their concerns by seeking out the advice of an attorney focusing on estate planning, even if they already have an estate plan.

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Some planning strategies:

  • Annual Exclusion Gifting. Each of us can give up to $16,000 per year (beginning in 2022) to anyone we want, without using our lifetime gift tax exclusion. We can give this amount to whomever we want. However, if we do not use it, the following January 1, it is lost. Further, at our death it is lost. Let’s say Grandma has 5 children, 20 grandchildren, and 5 great-grandchildren. Let’s say that 5 children and 10 grandchildren are married. Grandma could make gifts to each of them, for a total of $16,000 x 50, or $800,000 per year. This is an easy way to reduce the estate subject to taxation. If desired, the gifts could be made to a trust for the benefit of the beneficiaries, in order to retain control.
  • Fractional Interests. Typically, when death is near, it is too late to do discounting of assets remaining. Family Limited Partnerships and similar strategies tend not to work well when initiated at that late hour. However, it is simpler and safer to give a small interest in business assets and real property other than the personal residence. A tenant in common interest in realty gets a discount of 10%-25%, not just of the interest gifted, but also of the interest remaining.
  • Charitable Giving. If they are interested in charitable giving, doing so shortly before death is more powerful than doing so after death. Before death the gift will also qualify for a charitable income tax deduction, reducing income taxes as well as estate taxes.
  • Income Tax Basis. We all have a basis in property we own. Typically it is what we paid for it, adjusted by depreciation or improvements. However, at our death, the basis is changed to the value at the date of our death. Typically, this increases the basis, thus avoiding capital gains on the increase. However, sometimes we have property that has declined in value. If we continue to hold that property until death, the basis gets reduced, meaning we would never get the benefit of the tax loss on the property. So, if someone is close to death, it is wise for them to sell assets that have large losses.
  • Roth IRA. With traditional IRAs or 401k plans, there is a built in income tax liability because they have never been subject to income taxation. Unfortunately, for those with an estate large enough to face taxation, there is no discount for estate tax purposes for the inherent income tax liability in the asset. However, if your income is below $95,000 ($100,000 for a married couple filing jointly), you can convert your IRA to a “Roth IRA.”  By doing so, you subject the IRA to income taxation, but it escapes income taxation when withdrawn. Basically, this avoids the estate taxation on the income tax liability.

As time draws near, it is wise to consult with a qualified estate planning attorney. Such an attorney will review the estate plan and consider planning strategies such as those outlined in this article. The estate plan review and strategy implementation can help effectuate the ill person’s wishes, while saving money in the process.

Compliments of the McGee Law Firm, Attorney Brandon McGee

Written By: The American Academy of Estate Planning Attorneys

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Brandon McGee
Brandon McGee
Brandon McGee enjoys a successful law practice focusing on estate planning, elder law, Medicaid preplanning and crisis planning, and probate. Brandon and his team combine legal skills with compassion and understanding to develop estate plans that are personalized to the needs of each of their clients.
Brandon McGee
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Filed Under: Estate Planning, Financial planning

About Brandon McGee

Brandon McGee enjoys a successful law practice focusing on estate planning, elder law, Medicaid preplanning and crisis planning, and probate. Brandon and his team combine legal skills with compassion and understanding to develop estate plans that are personalized to the needs of each of their clients.

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May 25, 2021
    

Brandon McGee is knowledgeable, experienced and professional regarding Estate Planning. The entire process of multiple meetings to establish our input, draft and sign documents and fund the Trust were well organized and clearly explained. At completion, we were presented with a very well organized binder with the documents (both paper and electronic) and lists for future action.  In short, we find Brandon McGee and his staff to be competent, professional and friendly. ~ Brian C.

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