Financial success is a very good thing, but when it comes to estate planning, it presents a potential challenge. There are estate taxes that can have a major impact on your legacy if you are exposed. One of them is the federal estate tax, and it carries a 40 percent maximum rate.

Most families do not have to contend with this tax, because there is a credit or exclusion that allows you to transfer a certain amount free of taxation. In 2019, the exact amount of federal estate tax exclusion is $11.4 million. Last year it was $11.18 million, and there are ongoing adjustments to account for inflation. However, on January 1, 2026, the exclusion reverts to what it would be under the previous law, currently $5.74 million.

The federal estate tax is potentially applicable on asset transfers to anyone other than your spouse. There is a federal estate tax marital deduction that allows you to transfer unlimited assets to your spouse free of taxation. One caveat would be that the people in question must be citizens of the United States.

Since 2011, the estate tax exclusion has been portable between spouses. This means that a surviving spouse could use the exclusion that was allotted to his or her deceased spouse.

When you learn about the existence of the federal estate tax, you would naturally consider lifetime gift giving to avoid the tax. People used to do this shortly after the estate tax was enacted in 1916, but in 1924, a gift tax was put in place to close this loophole. It was repealed in 1926, but it returned in 1932, and it has been a fact of life ever since then.

The gift tax and the estate tax are unified, so the $11.4 million encompasses lifetime gift giving along with the estate that will be transferred to your heirs after your passing. However, there is another gift tax exclusion that you can use to give tax-free gifts.

We have an annual gift tax exclusion in the United States that stands at $15,000 at the present time. You can give this much to any number of gift recipients during a calendar year free of taxation.

State-Level Estate Tax

Most states do not have estate taxes on the state level, but as luck would have it, there is an estate tax in the Empire State. The exclusion is $5.74 million in 2019. It has a graduated rate that starts at 3.06 percent, and the maximum is 16 percent for estates with a value of $10.1 million or more.

As we stated above, you can use the federal estate tax exclusion to transfer $11.4 million tax free. This is the case regardless of the overall value of your estate. Unfortunately, the situation is quite different with the New York State estate tax.

If the value of your estate exceeds the New York exclusion by more than 5 percent, the entirety of your estate would be subject to taxation. You cannot use the $5.74 million exclusion at all. This is called the New York state estate tax “cliff.”

This variance between the federal estate tax and the New York state estate tax is not a good thing for taxpayers, but there is another difference that is beneficial. We do not have a gift tax on the state level, so you can give large lifetime gifts to your loved ones if you choose to do so to avoid the state-level estate tax.

Attend a Free Estate Planning Workshop

Since you found your way to this blog, you must be interested in obtaining information about estate planning. We definitely have a lot of informative content on this blog and throughout the website as a whole, and we urge you to take full advantage of it.

In addition to the resources on our website, we hold workshops throughout the Rochester area on an ongoing basis. You can learn a great deal if you attend one of these sessions, and there is no admission charge. However, we do ask that you register in advance so that we can save your seat.

To see the schedule and obtain registration information, visit this page: Rochester Estate Planning Workshops.

Schedule a Consultation!

If you are already sure that you want to discuss your legacy goals with licensed estate planning attorney, our doors are open. You can send us a message to request a consultation appointment or call us at (585) 546-1734.