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What You Need to Know About Wills and Gifting Assets

by Peter J. Creedon

As part of the estate financial planning process and regardless of status, age or net worth, here is what you need to know about a Will and Gifting Assets.

A Will ensures your wishes are carried out by people (executor) you trust and your possessions (assets) get distributed to the people or charities you want, in a cost effective manner. Your estate plan encompasses the accumulation, conservation and distribution of your possessions (assets).

5 steps you need to complete:

List your beneficiaries (family, friends, charity, business)

Include/add a beneficiary on your retirement plans (401(k), 403(b), IRA’s, etc.), pensions, life insurance and annuities. You can also add a Transfer on Death (TOD) on your investment and saving accounts. Remember to review and update your beneficiaries occasionally, since listed beneficiaries supersedes what is in a Will.

Prepare your Will with an attorney

A Will is a legal document that spells out your intentions. It clearly designates who and where you want your possessions (assets) to go after your death. You may not see the importance of a Will when you’re young and do not have much “stuff” but the need increases as you grow your career, a steady relationship, living with someone, having a domestic partner (hetero or same sex), married, children, second family, charitably inclined, business owner, etc.

If you do not have a Will, every state has statutory regulations/procedures for disposing of your possessions (assets) for you.

Dimitry Lapin, Esq. Lapin Law Firm, NYC explains, “While estate planning is commonly associated with the elderly, there is great value for young single adults, young parents, married or gay couples, and businesses to begin their estate plans by drafting a Will. Every persons’ situation is different, especially as it relates to their personal life and relationships. The laws of intestacy do not account for such differences. In many states, if an individual passes away without a spouse or children, the assets of that individual will pass to that person’s parents. The order of succession continues to other family members if both parents have predeceased the single adult. Only a formal executed last Will/Testament can address and state an individuals’ intentions.”

Get a Health Care Proxy

It ensures a person of your choosing follows your instructions regarding health care decisions, if you are unable or choose not to make decisions for yourself. A health care proxy does not automatically go into effect but, rather, comes into effect as specified in the document. This condition varies from state to state but most often, the document states that the proxy will come into effect only when and if your doctor declares that you are incapacitated.

According to the Human Rights Campaign (HRC), “It is especially critical for gay, lesbian, bisexual and transgender people to know that if you do not create a health care proxy naming your partner or a friend as your agent, the hospitals and courts will look to your closest biological family member to make health care decisions for you, and your partner or friend will have no legal right to make such decisions. Also, note that a health care proxy becomes ineffective at your death and it is, therefore, critical that you also have a Will”

Get a Power of Attorney

The power can be limited, durable or springing. The purpose is to allow someone else to make decisions, usually other than health care, if you are unable, or choose not to make decisions, such as financial issues and paying your bills. You can include a time limit power (e.g. 30 days to close on buying or selling a residence). Springing power of attorney is a conditional power (e.g. should you become incapacitated), your power springs – goes into effect.

HRC reminds the LGBTQ community, “It is critical for gay, lesbian, bisexual and transgender people to know if you do not create a power of attorney for finances naming your partner or a friend as agent no one will be able to manage your finances unless a guardianship proceeding is filed in court, and your closest biological family members will have priority of appointment”.

In your Will you may include gifting assets to an individual or charity. Be aware of potential taxes by the IRS (Internal Revenue Service).

Answers to questions about gifting assets

How much can I give without triggering gift tax or “who pays the gift tax?

The donor (giver) is generally responsible for paying the gift tax. Under special arrangements the done (receiver) may agree to pay the tax instead.

What is considered a gift?

Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth, value) is not received in return.

What can be excluded from gifts?

The general rule is that any gift is a taxable gift. However, there are exceptions to this rule:

• Gifts that are not more than the annual exclusion for the calendar year.
• Tuition or medical expenses you pay for someone.
• Gifts to your spouse.
• Gifts to a political organization for its use.
• Gifts to qualifying charities are deductible from the value of the gift(s) made.
• May I deduct gifts on my income tax return?

Gifting assets or leaving your estate to your heirs doesn’t ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than gifts that are deductible charitable contributions).

How many annual exclusions are available?

The annual exclusion applies to gifts to each done (receiver). The annual exclusion for 2016 is: $14,000 for each gift to an individual or child.

What if my spouse and I want to give away property that we own together?

You are each entitled to annual exclusion amount on the gift. Together, you can give $28,000 ($14,000 each) to an individual in 2016. Contact your tax advisor and attorney for further information. Or, visit irs.gov.

Disclosure: Crystal Brook Advisors is not a Tax Advisor or Attorney.

Peter J. Creedon Gravatar

Peter J. Creedon CFP®, ChFC, CLU is the founder and CEO of Crystal Brook Advisors, a NY Registered Investment Advisory firm. For more than 15 years, Peter has successfully advised, guided and educated young individuals, families, small businesses and large corporations in comprehensive financial planning and investment management solutions. Interested in setting up a free consultation with Peter to talk about setting up a will, gifting strategies or other financial planning topics? Click here to schedule an appointment.