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No, in fact, a very small percentage of American families have to be concerned about the federal estate tax.
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There is an estate tax exclusion that allows you to transfer a certain amount of property before the estate tax would be applied on the asset transfers. In 2019, the federal estate tax exclusion amount is $11.4 million, and the New York exclusion amount is $5.74 million. There are annual adjustments to account for inflation, and of course legislative changes are always possible.
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The federal estate tax rate is a flat 40% on everything above the exclusion amount, so it can take a heavy toll on your legacy if you are exposed. The maximum New York rate is 16%. While the New York rate is lower, if the value of your estate exceeds the amount of the state level exclusion by more than 5%, you cannot use the exclusion at all, and the entirety of your estate would be subject to taxation.
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In an estate planning context, this is the matter of portability. Prior to 2011, the answer to this question would have been no. However, due to a tax relief bill that was signed into law by the president in 2011, the exclusion was made portable between spouses, allowing the surviving spouse to add the deceased spouse’s unused exclusion amount to their own. However, “portability” is not automatic and must be timely claimed by the surviving spouse or it is lost. Moreover, New York does not have portability under any circumstances.
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There is an unlimited marital estate tax deduction that allows you to give any amount of money or any other type of property to your spouse free of taxation. One caveat to this statement would be that the surviving spouse must be a citizen of the United States to take advantage of the marital deduction.
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The federal estate tax was originally enacted in 1916, and at that time, people did give gifts to sidestep the tax. This window of opportunity was closed when a gift tax was put into place in 1924. It was repealed in 1926, but it returned for good in 1932. Since the gift tax and the estate tax are unified under the tax code, the exclusion is a unified exclusion that encompasses large lifetime gifts along with postmortem asset transfers.
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Unfortunately, the answer to this question is yes. All personally owned real property is part of your estate for tax purposes.
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No, these are two different forms of taxation. An inheritance tax is levied on transfers to each individual inheritor that is not exempt. It is not applied to the overall estate before it is transferred. There is no federal inheritance tax, but there are a few states with state-level inheritance taxes. New York is not one of them.
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Though New York does not have an inheritance tax, there is a state level estate tax in the Empire State. The exclusion is about half of the federal exclusion, so you could be federally exempt and still be exposed to the state estate tax. The maximum rate of this tax is 16%. The exclusion is far lower, and that’s a positive, but there is also a difference between the two taxes that is negative. If the value of your estate exceeds the amount of the state level exclusion by more than 5%, you cannot use the exclusion. The entirety of your estate would be subject to taxation.
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If you have concerns about taxation or any other estate planning matter, we would be more than glad to answer them and help you put a plan in place if you decide to move forward. To schedule a consultation appointment, send us a message or give us a call at (585) 546-1734.
