united-states new-jersey trusts-and-estates
Asset protect trust and final expensers
<p>A parent dies and leaves all his/her money to his/her adult child into an asset protection trust. The adult child wants to see as much money as possible in the trust. Hence he personally pays for the final expenses. Does this create any negative consequences such as ruining the asset protection offered by the trust? Would it be considered a gift and therefore if it was over the annual exclusion create a gift tax issue?</p>

<p>Payment of the final expenses of an estate does not make one a settlor of a testamentary trust, and thus, it would not impair its asset protection effect of the testamentary trust. (Incidentally, a disclaimer of (i.e. formal refusal to accept) a bequest or devise or inheritance is also not a gift for this purpose or for gift and estate tax purposes.)</p>
<p>A payment of the final expenses of a decedent is not an annual exclusion gift under the federal gift and estate tax in the United States. Only gifts of present interests in property to natural persons qualify for the annual exclusion, although, if a natural person was the creditor, I suppose it could be an annual exclusion gift from the person making the payment to the creditor.</p>
<p>Whether or not the payment of the final expenses like funeral costs and final illness expenses of a decedent constitutes a gift at all, within the meaning of the federal gift and estate tax in the United States, is not entirely clear. There may be case law or tax authority on that point that I haven't researched. But, I've never seen that question litigated.</p>
<p>Estates of persons dying in 2023 can exclude $12.92 million from gift and estate taxation per lifetime (including any lifetime gifts not exempt from gift taxation), plus any unused gift and estate tax exclusion inherited from a predeceased spouse. So, it is rare that payment of the final expenses of a decedent would materially impact the amount of gift and estate taxes due in an estate.</p>
