There are accidents leading to injuries that can leave a loved one on life support for an extended period. There may come a day when removing life support is discussed. Aside from having a living will and healthcare directive in place, family members may need to know about any large settlement from the accident or substantial assets in a checking account and the tax implications for the estate and the heirs.
There are actions that families can take while a person is incapacitated but still living, if the right planning has been done, which can minimize taxes after an individual dies, says NJ.com in the recent article, “Lowering an estate's value before death.”
This is a heart-breaking situation that no one wants to think about. However, it does provide the opportunity to engage in "death bed" planning that could help minimize estate taxes.
Estates larger than $5.49 million are subject to federal estate taxes of 40% in 2017. However, gifting can be used to lower the value of the estate. Individuals can make annual gifts of $14,000 per person, and a couple can make $28,000 to any person. If assets exceed $5.49 million, the estate can be reduced by making $14,000 gifts to as many family members as possible, prior to death. Gifts can be made in excess of $14,000, but that will be applied against and reduce the $5.49 million exemption amount.
Some states, like New Jersey, have taxes on estates more than $2 million. (The New Jersey estate tax is scheduled to be eliminated in 2018.) Check with a qualified estate planning attorney for state-specific rules. In New Jersey, there’s no limitation on annual gifts. Therefore, an individual can transfer an unlimited amount of assets immediately before death to reduce the estate tax.
Gifts can be executed by a power of attorney or guardian, if the loved one is unable to make the gifts him or herself. That power of attorney document must specifically authorize the agent to make gifts, and court approval is required to authorize a guardian to make gifts.
There are states that also impose an inheritance tax. This tax is not based on the size of the estate, but on who receives the estate. In New Jersey, there’s no inheritance tax imposed on transfers to a parent, grandparent, spouse, domestic partner, child or step-child (Class "A" beneficiaries).
Work through all of this with an experienced estate planning attorney.
Reference: NJ.com (June 23, 2017) “Lowering an estate's value before death”