Views and News - 03/01/2024
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the Food for Thought Archive.
Early (Very Early) Spring greetings to you all! As a native Southerner, I confess to being less than sanguine about the weather of January and February and to being much more enthusiastic about the milder months of mud and black flies that await us. I guess it's a hereditary attitude that evolved from all those swamps and mosquitoes.
So, I'll mention a few Spring things that might be helpful or at least explanatory.
I get asked all the time about whether people should leave the share of their assets to the spouse of a child who may predecease them. My thinking is generally that if the child has surviving children (the clients' grandchildren), it's usually better to leave that share for the benefit of those grandchildren instead. That's because the spouse (the mother/father of those grandchildren) will certainly benefit by having funds to help support his or her children, but also because it's not unusual that the spouse would remarry at some point and eventually leave all the clients' assets to the new spouse (whom they wouldn't even know), rather than to the clients' grandchildren. If there really is a desire to recognize the spouse of a deceased child, a very modest bequest is fine as a remembrance and will likely be unexpected but much appreciated.
Likewise, people often feel obligated to treat all their children entirely equally, even though the children may have completely different financial circumstances. That is, one child may be a surgeon who has a second home and takes lavish vacations, while the other is a struggling actor, writer or artist. Both certainly made choices about their lifestyles, but if both are committed to what they're doing and working hard at it, there's no reason why the parents can't take their children's financial rewards into consideration. If parents do that, though, it's important to include a separate letter explaining the reasons for disproportionate shares, so the children understand that they are loved and valued the same, but the parents are just trying to level the playing field a bit. After all, the parents may have already made a more significant contribution to the surgeon's education expenses.
Pivoting now to lifetime giving, you may already know that in 2024 you can make gifts up to $18,000 per surgeon or artist (or anyone else) without needing to pay any gift tax and without even needing to file a gift tax return to report those gifts. If your spouse joins in such generosity - even if the funds are all yours - you can increase those gifts to as much as $36,000 per person, but you'll need to file a gift tax return to indicate your spouse's consent.
Something else that people often think is that those gifts are all they can do in the way of non-taxable gifting. But not so. Keep in mind that we all currently have a lifetime exemption from federal gift and/or estate taxes of $13,610,000 - no typo there. That's $27,220,000 for a married couple and definitely more than most of us will ever need to prevent our estates from getting a tax due notice. That means even a well-heeled husband and wife can make non-taxable gifts of millions to their offspring (or any other lucky recipients) and still not need to worry about estate tax bills when their time comes. Again, there's a return to be filed for this uber generosity, but just for the purpose of letting the IRS know how really generous you've been and how much potential generosity you've got left.
There is a bit of a caveat here, however, and that's because after 2025, the law now provides that those exemptions I've mentioned will be cleaved in half and leave us with a mere $6,805,000 per person to remain estate or gift tax free - so, only a paltry $13,610,000 per married couple. I know that's enough to keep you up tonight, but I'll try to talk you down.
Many Congress people have pretty cushy estates of their own and may not want to increase the chances that their estates would be subject to tax if the projected exemption reductions become effective on 1/1/2026. So, despite that they don't agree on much anything else, they may decide to kick that exemption rollback down the road a few years or at least to reduce it significantly.
I know many of you stopped reading when I mentioned the current tax exemption limits, but for those of you still with me, there are a number of moves you might make to reduce the chances that your estates will ever have to pay any estate taxes. For one, charitable deductions are untouchables, so you might provide for bequests to your favorite social service agencies or medical centers, or for targeted support for educational and cultural organizations you've benefited from or enjoyed. Just look at the favorable notoriety recently received by the lady who used a spare billion to free her favorite medical school's students from any further tuition payments. That's going to be life-changing for those future doctors and it may inspire the generosity of others.
You might also set up an irrevocable trust for upcoming family generations (lavishly termed a "dynasty" trust) that would be structured so as not to be included in your taxable estate, and fund it with assets you can afford to part with that might otherwise be close to a tax threshold. Or, if you don't have several spare millions to use for that purpose, you might fund the trust with enough to pay premiums on as much life insurance as you can afford (or even on an existing policy), so the trust will be able to cash in when you finally cash out. There are other options, as well - like large outright gifts to deserving family members - but this is the low-hanging fruit.
Posted 05/01/2024 Misc.
So, I'll mention a few Spring things that might be helpful or at least explanatory.
I get asked all the time about whether people should leave the share of their assets to the spouse of a child who may predecease them. My thinking is generally that if the child has surviving children (the clients' grandchildren), it's usually better to leave that share for the benefit of those grandchildren instead. That's because the spouse (the mother/father of those grandchildren) will certainly benefit by having funds to help support his or her children, but also because it's not unusual that the spouse would remarry at some point and eventually leave all the clients' assets to the new spouse (whom they wouldn't even know), rather than to the clients' grandchildren. If there really is a desire to recognize the spouse of a deceased child, a very modest bequest is fine as a remembrance and will likely be unexpected but much appreciated.
Likewise, people often feel obligated to treat all their children entirely equally, even though the children may have completely different financial circumstances. That is, one child may be a surgeon who has a second home and takes lavish vacations, while the other is a struggling actor, writer or artist. Both certainly made choices about their lifestyles, but if both are committed to what they're doing and working hard at it, there's no reason why the parents can't take their children's financial rewards into consideration. If parents do that, though, it's important to include a separate letter explaining the reasons for disproportionate shares, so the children understand that they are loved and valued the same, but the parents are just trying to level the playing field a bit. After all, the parents may have already made a more significant contribution to the surgeon's education expenses.
Pivoting now to lifetime giving, you may already know that in 2024 you can make gifts up to $18,000 per surgeon or artist (or anyone else) without needing to pay any gift tax and without even needing to file a gift tax return to report those gifts. If your spouse joins in such generosity - even if the funds are all yours - you can increase those gifts to as much as $36,000 per person, but you'll need to file a gift tax return to indicate your spouse's consent.
Something else that people often think is that those gifts are all they can do in the way of non-taxable gifting. But not so. Keep in mind that we all currently have a lifetime exemption from federal gift and/or estate taxes of $13,610,000 - no typo there. That's $27,220,000 for a married couple and definitely more than most of us will ever need to prevent our estates from getting a tax due notice. That means even a well-heeled husband and wife can make non-taxable gifts of millions to their offspring (or any other lucky recipients) and still not need to worry about estate tax bills when their time comes. Again, there's a return to be filed for this uber generosity, but just for the purpose of letting the IRS know how really generous you've been and how much potential generosity you've got left.
There is a bit of a caveat here, however, and that's because after 2025, the law now provides that those exemptions I've mentioned will be cleaved in half and leave us with a mere $6,805,000 per person to remain estate or gift tax free - so, only a paltry $13,610,000 per married couple. I know that's enough to keep you up tonight, but I'll try to talk you down.
Many Congress people have pretty cushy estates of their own and may not want to increase the chances that their estates would be subject to tax if the projected exemption reductions become effective on 1/1/2026. So, despite that they don't agree on much anything else, they may decide to kick that exemption rollback down the road a few years or at least to reduce it significantly.
I know many of you stopped reading when I mentioned the current tax exemption limits, but for those of you still with me, there are a number of moves you might make to reduce the chances that your estates will ever have to pay any estate taxes. For one, charitable deductions are untouchables, so you might provide for bequests to your favorite social service agencies or medical centers, or for targeted support for educational and cultural organizations you've benefited from or enjoyed. Just look at the favorable notoriety recently received by the lady who used a spare billion to free her favorite medical school's students from any further tuition payments. That's going to be life-changing for those future doctors and it may inspire the generosity of others.
You might also set up an irrevocable trust for upcoming family generations (lavishly termed a "dynasty" trust) that would be structured so as not to be included in your taxable estate, and fund it with assets you can afford to part with that might otherwise be close to a tax threshold. Or, if you don't have several spare millions to use for that purpose, you might fund the trust with enough to pay premiums on as much life insurance as you can afford (or even on an existing policy), so the trust will be able to cash in when you finally cash out. There are other options, as well - like large outright gifts to deserving family members - but this is the low-hanging fruit.
Posted 05/01/2024 Misc.