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Lawrence Scherer, Esq., CPA, LL.M. Taxation
Charitable Lead Trust and the Time Value of Money
In this month’s installment of Estate Planning Techniques You Should Know, we address a technique called a Charitable Lead Trust (CLT). The CLT holds assets for a period of time, distributing its income to one or more charities. The crux of the plan works on the principle that delaying the beneficiary’s enjoyment of their inheritance will reduce the taxable value of their inheritance (while the property held in the CLT tends to appreciate throughout the term of the plan).
Think of it this way: If I am holding a pen worth Ten ($10) Dollars, and you wished to purchase the pen today, you would offer me Ten ($10) Dollars. BUT if I said that I would sell the pen to you today but you can’t use it for Twenty (20) Years, would you still pay me Ten ($10) Dollars? Of course not. Even our government recognizes that the value of the pen with delayed use is much less than its current value.
How do estate planning attorneys use this principle?
We create discounting for the period of delayed enjoyment.
Assume that a client has an estate of Forty Million ($40,000,000) Dollars. Without any planning, at the client’s death, the Federal Estate Tax would be $8,843,400, and the NYS Estate Tax would be approximately $3,900,000 (for a combined tax of approximately $12,745,000).
But if instead, we give the client’s children business or investment assets worth Forty Million ($40,000,000) Dollars when interest rates are Six (6%) Percent, but direct that the assets be held in trust for 20 years with all of the income going to a charity, the taxable value of that gift would be reduced to nearly Twelve Million Five Hundred Thousand ($12,500,000) Dollars.
At that taxable value, there would be no Federal Estate Tax owed and only $1,875,000 in NYS Estate Tax (Combined $1,875,000), thus saving the client’s beneficiaries approximately Eleven Million ($11,000,000) Dollars in combined estate taxes.
To ensure that the client’s beneficiaries can pay the NYS tax and still live comfortably for the next Twenty (20) Years, the client buys a Ten Million ($10,000,000) Life Insurance policy in a life insurance trust. The proceeds cover the NYS estate taxes and leave $8,125,000 for the beneficiaries’ needs.
Just like that, the beneficiaries have additional (non-taxable) liquid assets to cover the NYS tax and provide support throughout the CLT term. Effectively, there are no estate taxes!
To put the numbers in perspective:
- Assuming, after paying the $1,875,000 NYS estate tax, the trustees invest the remaining $8,125,000 at 6% and make 240 equal monthly installments, the client’s beneficiaries would receive more than $55,000/month.
- Then at the end of Twenty (20) Years, those same beneficiaries would receive the then-constituted CLT corpus.
Remember, the business or investment properties will appreciate throughout the 20-year term (potentially doubling or even doubling again), meaning the inheritance may ultimately exceed One Hundred Fifty Million ($150,000,000) Dollars, estate-tax-free, for the cost of the requisite insurance policy. Talk about bang for the buck!
In next month’s installment, we will expand on these excellent benefits with another estate planning technique that uses time to compound the client’s largess using intergenerational planning.
Gov. Hochul Vetoed the Grieving Families Act (Again!)
Usually, the last few weeks of the year are slow, but not for 2024.
Last Saturday night, Governor Hochul once again (3rd time) rejected the Grieving Families Act. That proposed legislation would have rewritten certain parts of the Estate Powers and Trust Law pertaining to wrongful death actions by both extending time to file wrongful death actions and by adding additional methods of valuing claims, such as non-earning potential-based valuation for the emotional loss of a loved one.
The Governor’s rejection was based on the idea that passing the act would significantly increase the cost of medical malpractice insurance and, accordingly, the cost of medical care, thus affecting the quality and availability of healthcare.
The fact that the veto was published on a Saturday evening indicates how unpopular the Governor anticipated the veto would be.
Ready for a Game of Legislative “PONG” – BOI Reporting Is On! No… It’s Off… It’s Back On!
Court rulings on BOI filings continue going back and forth like the white dot in the Atari game…
The Latest: It’s On and Off Again Within 24 Hours!
- On January 23, 2025, the Supreme Court overturned the overturned injunction… that overturned the injunction… on BOI registration.
- Then, it was back to enjoined as the Supreme Court failed to join another Texas case.
Well, it’s been a long and winding rollout for the Corporate Transparency Act (“CTA”) and its requirement that all beneficial ownership interests of 25% or more be registered with the Treasury Department.
As predicted in last month’s issue:
- The Texas Top Cop injunction against forced compliance with the CTA was lifted on 12-23-24 with a January 13, 2025 deadline.
- But in an unprecedentedly quick action, the appellate court reinstated the injunction.
- Then, in less than a month, the Supreme Court of the United States reinstated the BOI filing requirement.
- But wait! The very next day, the CTA injunction was back on because of a different, unrelated Texas case.
The constant lifting and reinstatement of the CTA compliance requirement has been extremely confusing to the general public (and to me, as well!).
There are currently 26 million of the 33.6 million small businesses affected by the CTA that have not filed.
What should you do?
Voluntary compliance is recommended as we believe the second Texas case will also end with a determination that the CTA is constitutional.
We will post updates as they occur.
We again note that nearly 26 million small businesses have yet to register, so compliance deadlines are going to be tight.
Our advice:
File sooner than later, especially while there is no deadline for compliance.
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The Fair Chance for Housing Act
New York City enacted a new law protecting persons with unfavorable criminal histories from being denied a lease or the purchase of NYC housing.
The new law, called The Fair Chance for Housing Act (“New Act”), goes into effect on January 1, 2025.
It was designed to prevent housing discrimination against people with previous criminal convictions and those who reside with them.
Key Provisions:
- Property owners (including Condos and Co-ops) generally cannot obtain a criminal background check on a prospective purchaser or tenant, except under limited circumstances.
- Housing providers may not question an applicant about their criminal background during the initial sale or leasing process.
- A background check may only be conducted after a preliminary decision is made.
Permitted Background Checks (After a Preliminary Decision):
- Sex offense registry checks
- Felony convictions within 5 years of the applicant’s release from prison
- Misdemeanor convictions within 3 years of the applicant’s release from prison
If the applicant is denied housing based on these results, the housing provider must:
- Provide a copy of the search results to the applicant.
- Allow at least 5 days for the applicant to review results, correct errors, or provide mitigating factors.
- If the applicant is still denied, provide a written statement identifying the source documents used and explain how the decision advances the housing provider’s “legitimate business interest.”
Higher Minimum Wage
As of January 1, 2025, the minimum wage for New York City and Long Island has been raised to $16.50 per hour.
President Biden Bans New Offshore Drilling in Most Federal Waters
In a last-minute effort to throw roadblocks in the way of Trump’s incoming presidential plans, outgoing President Biden signed an executive order to block new drilling on continental shelf properties.
This was done under the perceived authority of the federal Outer Continental Shelf Lands Act to protect offshore areas along:
- The East and West coasts
- The eastern Gulf of Mexico
- Portions of Alaska’s Northern Bering Sea
This action is aimed at preventing future oil and natural gas leasing in these regions.
Biden Proposes Maximum Nicotine Levels for Cigarettes
President Biden is seeking to shut down the cigarette industry by regulating maximum nicotine levels to a point that would effectively eliminate nearly all currently available cigarettes.
If adopted by the Food and Drug Administration (FDA), the new rule would ban almost every cigarette available for purchase in the United States.
However, since the rule requires a comment period, it will likely fall within Trump’s second term, making it subject to repeal.
Possible Consequences:
- Protecting nearly 150,000 tobacco industry jobs (mostly in solidly red states) will require Trump to fight the new regulation.
- A black market for cigarettes could emerge, potentially increasing foreign-produced cigarette sales in the U.S.
New Laws Effective January 1, 2025
Charter Bus Seat Belt Law
- Seatbelts are now required for all seats on charter buses.
Auto Lease Return Fees Banned
- Auto dealers can no longer charge a fee for turning in a leased car at the end of the lease term.
Credit Rating Companies Can’t Factor in Medical Bills
- Outgoing President Biden has banned credit rating companies from using unpaid medical bills in their consumer credit ratings.
- This is designed to increase mortgage accessibility, but it may increase government-backed mortgage defaults.
Unemployment Surcharge Assessed Against NYS Employers
- NYS employers must pay a temporary surcharge to cover interest on loans taken to fund the state’s unemployment deficit from COVID-related shutdowns.
FCC Robocall Rules (Effective January 27, 2025)
- Telemarketers must now obtain explicit, one-to-one written consent from consumers before using robocalls.
- Each business must obtain separate consent, eliminating mass consent authorizations.
- Violations will result in significant fines and legal penalties.
New Cell Phone Rule
- If you lose your cell phone, your mobile provider must lock it down for free upon request.
School Districts Must Shut Down Hot Schools
- If a school’s temperature exceeds 82°F, the school must take measures to cool it down.
- If the temperature exceeds 88°F, the school must close.
Limit on Cost of Epi-Pens
- Effective January 1, 2025, the cost of a two-pack of Epi-Pens in New York State is capped at $100.
- This comes after multiple lawsuits against Mylan Pharmaceuticals and Pfizer over price gouging.
NYC Congestion Pricing Tax
- As of January 5, 2025, it now costs at least $9 more to drive into midtown NYC during peak hours.
- For those without an E-ZPass, the fee jumps to $13.50.
- This policy faces major opposition from commuters and New Jersey officials.
Expanded Workers’ Compensation for Stress-Related Disabilities
- New York State has expanded workers’ compensation coverage to include more stress-related conditions, increasing costs for employers and taxpayers.
Paid Pre-Natal Leave
- New York State is now the first state to require paid leave for prenatal doctor appointments.
$75 Billion Energy Tax on Producers
- Governor Kathy Hochul signed a $75 billion tax on energy producers, which will likely lead to higher electricity and gas prices.
- Energy costs already rose 13% in 2024, and this tax may cause another spike.
- The law is expected to face legal challenges.
Absentee Ballot Drop Boxes Approved in NYS
- The NYS Board of Elections has authorized the use of absentee ballot drop boxes across the state.
- Fraud concerns are low, with an estimated error rate of less than 1%.
In addition to being a co-founder of the LIAFPN, Larry Scherer has a strong background in Trust & Estates and Elder Law and serves as Managing Member of Scherer & Pudell, PLLC, a transactional law firm in Garden City, NY. He can be reached at (516) 747-7007. Connect on LinkedIn.
