ESTATE PLANNING FOR THE NEW YEAR

January 22, 2024

We’ve said it before, and we’ll say it again: there is no better time to review your estate plan than the new year. The beginning of the year is a time for reflection and planning, bringing a fresh start and a chance to evaluate your life and goals. Part of this evaluation should be the status of your estate plan.

An annual review of your estate plan should begin by reading through your current documents to ensure that your wishes for the disposition of your assets and the appointment of your fiduciaries named to administer your estate and any trusts you created remain the same. Your documents may need to be updated if, since their creation, there have been changes in your financial information, such as growth of your assets, and/or changes in your family situation such as a marriage, divorce, birth of a child or grandchild, or the death of a family member. A new year may also bring a change in estate or tax laws that can have a dramatic effect on the way your estate passes to your intended beneficiaries. An annual review can help ensure that your estate planning and related documents comply with changes in both the law and your circumstances. This newsletter will highlight some of the considerations and changes that should be reviewed and considered along with your estate and related planning.

Beginning January 1, 2024, the federal gift and estate tax exemption increases to $13,610,000 for decedents dying in 2024. That means that a person can pass assets up to that amount to anyone they designate (either during life or upon death) without incurring a federal estate tax. Federally, “portability” remains in effect, which means that spouses may pass a total of $27,220,000 to their beneficiaries free of federal estate tax. Note, however, that the federal exemption is scheduled to “sunset” after December 31, 2025, when the exemption will automatically decrease to $5,000,000 (indexed for inflation). Consequently, if you are inclined to take advantage of the current historically high exemption, you should act sooner rather than later. Whether the sunset will happen earlier, at the date intended, or be eliminated entirely is up to Congress. Since the future is unknown, your estate plan documents should be flexible to accommodate changes in the tax law and changes in your situation.

Also beginning January 1, 2024, the federal annual gift tax exclusion amount has increased to $18,000 per recipient (up from $17,000 in 2023, and the third consecutive annual increase). The annual exclusion amount is the amount that you are allowed to gift in total to any one beneficiary in a calendar year without being required to file a federal gift tax return for the year of the gift. This is a great planning tool in many estate plans to help reduce a taxable estate.

The repeal of New Jersey’s estate tax in 2018 remains in effect. This change should be reflected in your current estate plan. The New Jersey inheritance tax remains in effect, which means that dispositions to a Class A beneficiary (i.e., a spouse, child, grandchild, or parent) are exempt from New Jersey inheritance tax, dispositions to Class C and D beneficiaries (other family members not specified above and friends) are taxed at varying rates depending upon their relation to the decedent, and dispositions to Class E beneficiaries (charitable, religious, educational and medical entities) are exempt from the inheritance tax, but an Inheritance Tax Return still must be filed. New Jersey currently has no gift tax in place, although gifts you make within three (3) years of your death are brought back into your taxable estate for New Jersey inheritance tax purposes. For more information about New Jersey’s Inheritance Tax, please see our prior Alert, here.

For New York residents, the State estate tax remains in effect. The New York estate tax exemption is now $6,940,000 in 2024, but there is no “portability” for spouses, so estate planning becomes even more important here. Note that New York estate tax is also subject to a “cliff,” so that if the taxable estate of a New York resident exceeds $7,287,000 (the exemption plus 5%), the exemption disappears, and the entire estate is taxable. New York has also maintained a three (3) year lookback for purposes of gift tax. Accordingly, any gift made within three (3) years of death will be brought back into the taxable estate for New York estate tax purposes.

Regardless of the size of your estate, there is no time like the beginning of a new year to review your estate plan and get your documents in order. If you have estate planning documents in place, let this be your reminder to review your documents to make sure that your wishes are accurately reflected and your goals are clear. If you have yet to prepare your estate plan or want to make changes to your existing documents after your review, the attorneys in our Trusts and Estates group are here to help.

Learn more about our Trust & Estates and Elder Law & Special Needs Planning Practices.

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The information contained herein is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to these materials do not create an attorney-client relationship between Pashman Stein Walder Hayden P.C. and/or its attorneys, and the reader of the materials.