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New Year’s Resolutions

Creating an estate plan and making gifts to your loved ones

Most people plan on making a New Year’s resolution. Whether that involves making a lifestyle change, cleaning out that cluttered room in the house or repairing a frayed relationship, resolutions often involve addressing something that we’ve put off for far too long. That could certainly be said about preparing an estate plan. It’s something we all know we should do, but don’t. That might be because planning for your eventual passing or incapacity makes for a none too enjoyable afternoon experience. Creating an estate plan is necessary, however, to ensure that your wishes are met and your loved ones are protected.

Reviewing your important documents

Now that the New Year is upon us, it’s an excellent time to make an estate plan. If you have an existing estate plan, now is a good time to review and update it, particularly if there have been changes in your family lately, including births, weddings, divorces, disabilities or others. If you have experienced any of these major life changes, it may be prudent to review your current estate plan and make the necessary changes. This should involve reviewing, or creating, the following documents:

Wills – One of the most important estate planning documents to prepare is a will. By executing a will, you are stating how you wish your estate to be distributed upon your death. It is especially important not only to express who inherits your assets, but also to prevent your estate, or share of your estate, from going to an individual who you do not want to inherit it. If an individual passes without a will, their estate will be distributed according to the intestacy laws of Pennsylvania. Therefore, if you die without a will, your estate, or part of your estate, may go to a family member regardless of whether you intended that person to receive a share or not.

Durable power of attorney – Another essential estate planning document is the durable power of attorney. By executing a power of attorney, you are giving another person the power to make financial and/or medical decisions on your behalf should you not be able to do so for yourself. A durable power of attorney remains in effect even after a person becomes incapacitated. This is especially important because, if you become incapacitated without having executed a power of attorney, it is likely that guardianship proceedings will need to be instituted to appoint a guardian to make financial or medical decisions on your behalf. The guardianship process, which requires petitioning the court, is a more complex and expensive process compared to executing a power of attorney. A guardianship hearing could result in a decision contrary to what you would have wanted or having someone you wouldn’t have chosen as your guardian.

Living will – Lastly, it is also important to prepare a living will. This document allows you to indicate your preferences in advance regarding the initiation, continuation, withholding or withdrawal of life-sustaining treatment should you become unable to make these decisions.

Gifting also goes hand-in-hand with properly planning

The IRS has announced that the annual gift tax exclusion is increasing due to inflation. The exclusion will be $19,000 per recipient for 2025, the highest exclusion amount ever. In addition, the estate and gift tax exemption will be $13.99 million per individual for 2025 gifts and deaths, up from $13.61 million in 2024. This increase means that a married couple can shield a total of $27.98 million without having to pay any federal estate or gift tax. For a couple that has already maxed out lifetime gifts, this means that they may now give away another $760,000 starting in 2025. If an individual makes gifts in excess of the annual gift tax exclusion, a gift tax return will be due on April 15 the following year to report the gift (and track the amount of the lifetime exemption that has been used).

But, you must note that there are two situations in which a gift could result in Pennsylvania inheritance taxes. First, if the one making the gift were to pass away within one year of the gift, the entire value (minus an exclusion of $3,500 per recipient) would be subject to Pennsylvania inheritance tax. Second, even if the one making the gift survived for more than one year after the gift, to the extent that he or she retained any partial ownership of the property, there would be Pennsylvania inheritance tax owed on the portion of ownership that was retained. For instance, if the title a house were changed so that the donor and donee each held a half interest in the property, and then the donor survived one year, one-half of the value of the property would still be subject to the inheritance tax at the time of death of the donor. If the donor continues to reside on the property, either by actual possession or by an implication that they may return to the property prior to his/her death, the Pennsylvania Department of Revenue takes the position that the gift really has not been “completed” until the time of death, because the donor has kept the use and enjoyment of the property during his or her lifetime. Under these circumstances, the total value of the property would be subject to inheritance tax based upon the value of the property as of the date of death.

Both the one making a gift and the recipient of that gift must take into consideration the fact that, in the future, that asset will be available to and liable for any claims against the recipient of the gift. For instance, if the recipient of the gift was in an accident and a claim or lawsuit was filed against that person, a lien could be placed against the asset that was gifted. Likewise, if the recipient of a gift were to become involved in a divorce proceeding, the asset would be subject to the dispute of those proceedings and could be lost through the divorce action.

Michele P. Conti is an estate planning and elder law attorney. She is also the owner of Conti Law, a concierge law firm. She can be reached at (724) 784-0239 or at michele@ contilawpgh.com. Conti Law is located at 7880 Steubenville Pike in North Fayette Township.