Top Tips for Transferring Wealth

EVERY SO OFTEN, a horror story of some recently departed wealthy person litters every talk show, newspaper, magazine and tabloid in the country: “billionaire hotelier Leona Helmsley bequeaths pampered pooch $12 million” or “lonely and illegitimate son of aristocrat leaves estate to 70 strangers chosen randomly out of a Lisbon phone book.”

These tales tell the sad truth: deciding when and how to divide an estate can be an awkward subject—certainly a topic that is touchy enough to be avoided during the rare family get-together. Keeping the peace—and the peace of mind—after you’ve moved on requires correctly mapping current desires as well as thinking about “what happens after.” When and how to transfer inheritance depends on personal goals. Although rules and regulations can always change, there are certain strategies to help preserve assets for future generations.

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BEFORE DIVVYING UP the pearls, plan for your own future care. We’d all love to spend our last years cruising around the seas or jaunting across continents. But in reality, there is a strong likelihood some kind of long-term care will be needed. According to the U.S. Department of Health and Human Services, someone turning age 65 today has a nearly 70 percent chance of needing some type of long-term care services in their remaining years.

Imagine what a surprise it would be if yearly costs for elder care chewed through the life savings you planned to bestow beneficiaries. Not exactly the graceful exit you had hoped. According to Genworth’s 2016 Cost of Care survey, a private room in a nursing home on Long Island can cost more than $155,000 per year. Assisted living facilities can draw nearly $80,000 and the cost of a home health aide can wash away $50,000 annually.

Many choose to invest in long-term care insurance, which often covers nursing home costs. Some add a partnership policy, which can help retain assets after enrolling in Medicaid long-term care services. These policies work by allowing an individual or couple to keep all or part of their assets under the Medicaid program if their long-term care needs extend beyond the period covered by their policy. New York State offers a partnership program through the Department of Health that combines private long-term care insurance and Medicaid Extended Coverage (MEC). The program helps patients pay for services without having to spend down assets, while simultaneously reducing the state’s total cost of Medicaid.

Others choose to completely divest themselves of their assets in order to become eligible for Medicaid, which will generally foot the bill for nursing home costs. In order to qualify however, you need to have less than $14,850 in assets.

Medicaid allows for some asset exemptions, said elder law attorney Lissett Ferreira. “The exemptions are personal effects, sentimental jewelry, household furnishings, a car for personal use and certain retirement assets,” she said. The primary residence may also be exempt if you’re in a nursing home but plan on returning to the house or if a spouse, minor, disabled child or other dependent relative resides there. When planning to divest, the key is to put together a diverse team of trustworthy professionals. Come up with a plan as early as possible.

Ferreira also noted that earlier is better. “Medicaid has a five-year look back period,” she said, meaning that when the time comes to head to a nursing home, Medicaid will scour the previous five years of financial records. “They will look to see if there were any uncompensated transfers, giving away of assets without receiving anything in return, or receiving a dollar for a valuable piece of property.”


NOT EVERYONE WILL have a stash of Chinese gold coins in the attic to be divvied up when they’re gone. “Purely from an estate tax calculation perspective, if the values are the same, then there is no difference between liquid assets or fixed assets,” said Alan Sasserath, partner at CPA firm Sasserath & Zoraian, LLP in Melville.

Ultimately, it depends on how quickly funds are needed. “It’s more of personal taste and goals,” said Brian M. Travers, president and chief executive of Travers and Associates in Melville. “Liquidity is easier in any event, including estate planning. Jewelry and art have an additional step of needing to be valued by an appraisal company to determine fair market value in an estate.” Sasserath agreed that, “liquid assets are better if there is tax due since they are normally easier to dispose of for full value. Art and jewelry can be more difficult to value and dispose of for full value if a quick sale is necessary.”

Appraisals will help with possessions such as art, jewelry, real estate and assets that don’t have a readily available value, like stock in a public company, Sasserath explained. “If you have an appraisal that was led with the estate tax return and prepared by a qualified appraiser, there is a much greater likelihood the appraisal will be accepted by the IRS. If additional tax is determined upon audit, there could also be interest and penalty to pay in addition to the tax,” Sasserath said.


THE TIMING OF a transfer depends in large part on the estate tax, levied on any property that is transferred following a person’s death. A decade ago, the estate tax exemption was $600,000, but it’s been hiked all the way to $5.49 million in 2017, giving most people the right to pass their assets on with impunity. With two people doing the giving, such as parents, the amount can be doubled. “Anything under $11 million and you shouldn’t have an estate tax,” Travers said.

If an estate is worth more than $5.49 million (or $11 million per couple), and you’re not eager to have beneficiaries’ hand 40 percent of it over in taxes, a popular tool to utilize immediately is life insurance, otherwise known as “cheap liquidity.” It can be purchased at a discount and used to absorb the costs of estate taxes.

“Life insurance, depending upon age and health, will cost fifty cents on the dollar or less in the form of premium payments,” Travers explained. “For a $3.6 million tax, a family may pay, say $1.5 million in the course of premiums over the course of their lifetime to the insurance company. The insurance accepts the risk of the $3.6 million.”

Upon death, the insurance is, “paid directly to the designated beneficiary pursuant to the terms of the contract,” said Robert Adler, an estate law attorney. But keep in mind that life insurance is also subject to estate tax. The way around this is to give up ownership of the policy since transferring has very limited consequences, Adler said. He suggested considering an irrevocable life insurance trust.

Another solution is giving the gift of money. While alive, you’re able to gift away (tax free) $14,000 per year, or $28,000 per couple, under the “annual exclusion.” A sizable sum could accrue for benefactors if the plan begins early enough.


IF BENEFACTORS PLAN on selling any assets of the estate, it may be better to hold onto those goods, as an inheritance can avoid capital gains taxes. Inheritors are typically given a “step up” in basis points to minimize capital gains taxes. (Basis means what you paid for it, and the step up means the asset’s appreciation is taken into account and forgiven.)

“Let’s say I have one share of ABC stock I bought for $10,” Adler said. “When I die it’s worth $100 dollars on the day of my death. My son inherits it. His basis is $100. He sells it a week later for $100, he has no capital gain.” If, on the other hand, a father gifted his son with a $100 worth of stock, and his son sold it, he’d have to pay taxes on everything but the $10 the stock that was originally purchased for. “You may as well leave it in your name until you pass so the beneficiaries get the step up on basis without having to pay any tax,” Sasserath said.

There are many more tools to utilize when it comes to estate planning, but it’s ultimately important to evaluate on a case by case basis. The important thing is to start early, find the right professionals and map goals and desires so you can indeed rest in peace.