Now that we are in a new year, there are some updates to share with regard to estate planning and elder law parameters that are subject to change. In this post, we are going to look at revisions that impact the estate taxes that New York residents may be forced to pay.

Federal Estate Tax

There is a federal estate tax that can have a serious impact on your legacy, because it carries a hefty rate. The maximum rate of the federal estate tax is 40 percent, so it is something to take very seriously. That sounds like a lot, and it is, but it was more draconian in the recent past. Back in 2001, the maximum rate of the federal death tax was 55 percent, so it has gone in the right direction.

In 2010, the estate tax was repealed for one year under the terms of the Bush tax cuts, but it was scheduled to return in 2011 with an exclusion of just $1 million. The exclusion is the amount that can be transferred before the estate tax becomes applicable.

Toward the end of that year, a new tax package was passed by Congress, and it was signed into law by the President. It set the federal estate tax exclusion at $5 million, and the top rate was 35 percent.

The American Taxpayer Relief Act of 2012 was enacted to replace the previous piece of tax legislation, and this measure had an effect on the estate tax as well. The $5 million exclusion was retained with ongoing adjustments to account for inflation, and the rate went up to 40 percent. This is somewhat ironic considering the fact that the measure is called a taxpayer relief act.

The 40 percent maximum rate coupled with a $5 million exclusion adjusted for inflation remained in place through 2017. During that year, the Tax Cuts and Jobs Act was passed. Under the terms of this fresh law, the estate tax exclusion went up to $11.18 million, and the maximum rate stayed the same.

An inflation adjustment has been added by the Internal Revenue Service for 2019. This year, the federal estate tax exclusion is $11.4 million.

It is important to understand the fact that there is an unlimited marital deduction that allows for unlimited transfers between spouses free of taxation. One caveat would be that the people involved must be American citizens. Speaking of spouses, the federal estate tax exclusion is portable, so a surviving spouse can use the exclusion that was allotted to his or her deceased spouse. However, that portability is not automatic, and a specific filing must be made with IRS to preserve it.

We have a gift tax in the United States to stop people from giving away money to avoid the estate tax. As a result, the exclusion is a unified exclusion that applies to lifetime gifts that you give along with your estate.

To provide a simple example for clarification purposes, if you give away $11.4 in January, and you die in July, the entirety of your estate would be subject to taxation.

New York State Estate Tax

There are a handful of states in the union that have state level estate taxes. We practice in New York, and our state does have its own estate tax. Last year, the exclusion was $5.2 million, but it has been adjusted upward for 2019. This year, it is $5.74 million, and there will be ongoing adjustments going forward. This levy has a graduating rate that starts at 3.06 percent, and it tops out at 16 percent.

As we stated, on the federal level, there is no tax on the excluded portion of your estate, regardless of its overall value. Things are different on the state level here in New York. If the value of your estate is more than 5 percent over the exclusion amount, the exclusion goes away and the entirety of your estate will be subject to taxation.

Attend a Free Estate Planning Workshop!

Our attorneys are holding a series of estate planning workshops in the near future. We encourage you to attend the session that fits into your schedule, because these workshops provide a great deal of very useful information. Best of all, they are being offered free of charge, so you have everything to gain and nothing to lose. You can click this link to see the schedule and obtain registration information.