Estate Planning Isn’t Just For The Elderly

Happy, smiling couple in their sixties.

Is This an Opportune Time to Gift Your Commercial Real Estate Holdings for Estate and Gift Tax Planning Purposes?

By: Anthony J. Enea, Esq.

As has been well documented, the current federal estate and gift tax exemption of 11.7 million dollars per person is scheduled to sunset (expire) on December 31, 2025.

Unless the current exemption is made permanent on or before December 31, 2025 (which is highly unlikely) because of the present political environment in Washington; on January 1, 2026 the new federal estate and gift tax exemption will be approximately 6 million dollars per person. Thus, in a mere 4 years it is likely that if one does not act, they will have lost the opportunity to take advantage of a total of 5.7 million dollars of gift tax exemptions that presently exist. Thus, incurring the possibility of significant federal and state estate taxes upon their demise. It should be noted that in November of 2019 the IRS advised taxpayers that if they make taxable lifetime gifts after 2017 and die after 2025, the exclusion used in calculating the gift will be the amount when the gift was made and not that of 2026. Thus, they will not clawback into one’s federal taxable estate the amount gifted on or before 12/31/2025.

In addition to the significant benefit of gifting resulting from the current federal estate and gift tax exemption, the Covid-19 pandemic has significantly reduced the value of commercial real estate (apartment buildings and retail spaces) particularly in New York City and other large cities. Values have dramatically fallen because of current projected vacancy rates and rent defaults. Thus, many properties have lower current valuations, thus, allowing one to convey said properties to loved one’s and/or trusts for loved one’s while maximizing the current gift tax exemption amount. This benefit is further enhanced if one does not gift a majority interest in the premises and/or the entity owning the premises, thus, allowing the transferor to further discount the value of the property gifted by utilizing a discount for lack of marketability and a minority interest discount. This discount will further reduce the amount of the gift tax exemption utilized by the gift.

Finally, as if the above were not sufficiently convincing that a once in a lifetime opportunity exists to shelter assets from estate taxes, the current low interest rate environment makes it an opportune time to utilize estate planning tools such as a Grantor Retained Annuity Trust (GRAT).

There are many factors beyond the estate tax benefits that need to be considered before one gifts assets. Perhaps most important being whether one is comfortable making the gift and whether the gift should be made outright or to a trust. However, in the current environment with the potential likelihood of both federal and state estate tax exemption being reduced, taking steps to reduce one’s taxable estate is imperative.

Anthony J. Enea

Anthony J. Enea is a member of Enea, Scanlan and Sirignano, LLP of White Plains, New York. He focuses his practice on Elder Law, Wills, Trusts and Estates. Mr. Enea is the Past Chair of Elder Law and Special Needs Section of the New York State Bar Association (NYSBA). He is the current Chair of the 50+ Section of the NYSBA. Mr. Enea is the Past President and Founding member of the New York Chapter of the National Academy of Elder Law Attorneys (NAELA). Mr. Enea is the President of the Westchester County Bar Foundation and a Past President of the Westchester County Bar Association. He is also a Certified Elder Law Attorney as accredited by the National Elder Law Foundation.

Mr. Enea can be reached at (914) 269-2367 or at [email protected]

Enea, Scanlan & Sirignano, LLP