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Frequently Asked Questions on Estate Planning

Bart Basi ’62 offers his perspective on the many considerations of planning your estate. * **

A Senior Advisor for the Center for Financial, Legal, and Tax Planning, Inc., Dr. Basi is considered a national expert on matters of financial planning and taxation, and lectures extensively throughout the United States. After earning his B.S. in Accounting from Utica College in 1962, he went on to earn an M.B.A. from Syracuse University in 1963, a J.D. from the University of Louisville Law School in 1969, and a D.B.A. from Indiana University in 1971.

Frequently Asked Questions

* The information contained herein is not intended to be an endorsement or promotion of Mr. Basi’s services, and do not represent official advice from Utica College.

** Utica College does not offer legal, financial, or tax advice to its alumni, parents, and friends. Individuals should always consult qualified licensed professionals when planning their estate.

Is it important to file estate income on my federal tax return?

Yes, this is very important. By filing your estate income or acquired assets you will receive the step-up in basis for the market value of the property.

What is meant by a “step-up” in basis?

A step-up in basis is the readjustment of the value of an appreciated asset for tax purposes upon inheritance, determined to be the higher market value of the asset at the time of inheritance. 

What is the purpose of a “Pour-over Will?”

Pour-over wills act as a backstop against issues that could frustrate the smooth operation of a living trust. They ensure any assets a grantor neglects to add to a trust, whether by accident or on purpose, will end up in the trust after execution of the will. The will can also provide extra protection against legal issues with a trust by stipulating that the assets intended for the trust be distributed to the trust’s beneficiaries should it become invalid or, in the case of an unfunded trust, should it become legally difficult or impossible to fund at the time of the grantor’s death.

What are the key characteristics of a trust?

The characteristics of a trust are as follows:

  • Grantor - All trusts have a grantor, sometimes called a settler or trustor. This is the person who creates the trust and has the legal capacity to transfer property.
  • Trustee - The trustee can be any individual or organization that can take title to property on behalf of a beneficiary. The trustee is responsible for managing the property according to the rules outlined in the trust document, and must do so in the best interests of the beneficiary. This person may be the grantor, the spouse or adult child of the trust, or a third party. It is important to note that the trustee must be prepared to be held accountable to the grantor, the beneficiaries, or both. (See also: Can You Trust Your Trustee?)
  • Beneficiary - The beneficiary is the party or parties benefiting from the trust. The beneficiary or beneficiaries are not required to have the same interests in the trust property. 

What is a Living Trust?

A Living Trust can offer a number of benefits including: a.) Healthcare provisions and end-of-life or other non-financial desires of the grantor; b.) Protection against incapacity of the grantor and beneficiary; c.) Easy succession of trustees; d.) Immediate access to income and principal by beneficiaries; and e.) Privacy if the state requires the filing of an inventory of assets.

What is a Testamentary Trust?

Testamentary trusts, sometimes called trust under will, is created by a will after the grantor dies. Testamentary trusts are trusts created for specific long-term estate planning in mind:

  • Preserving assets for children from a previous marriage
  • Protecting spouse’s financial future
  • Ensuring special needs beneficiary will be taken care of
  • Gifting to charities 

What is a charitable gift annuity?

A charitable gift annuity is a contract between a donor and a charity with the following terms: As a donor, you make a sizable gift to charity using cash, securities or possibly other assets. In return, you become eligible to take a partial tax deduction for your donation, plus you receive a fixed stream of income from the charity for the rest of your life.

 

How did the Tax Cuts & Jobs Act of 2017 impact estate taxes?

The Tax Cuts and Jobs Act doubles the exemption for gift, estate and Generational Skipping Tax (GST) taxes from $5 million to $10 million per person, indexed for inflation occurring after 2011. In 2019, the amount, per person was $11,400,000.

What are the tax effects of irrevocable living trusts?

There are a number of tax implications on irrevocable living trusts, including:

  • Property that you've transferred into an irrevocable living trust does not contribute to the value of your estate for estate tax purposes. Just as your creditors and judgment holders can't reach it, neither can the Internal Revenue Service tax your estate on its value.
  • This can be beneficial if you have a very large estate. As of 2018, estates valued at more than $11.18 million are subject to a federal estate tax on the balance of their values over this threshold. The top tax rate is 40 percent.

This threshold, called an exemption, is indexed for inflation so it goes up annually. But it might not always be this significant. 

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