Our Current Estate Tax Structure Requires a Rethinking of Tax Planning Considerations

by Walter Daszkowski

Federal Estate and Gift Tax The American Taxpayer Relief Act of 2012 drastically altered the landscape of estate and gift tax planning. Under provisions of the revised law, the federal estate tax and gift tax exemption of $5 million was made permanent and indexed for inflation (it is $5.45 million for 2016). In 2000, it was just $675,000 per person. This change allows a married couple to shelter $10.9 million from estate and gift taxes.

New York State Estate Tax A one-size-fits-all approach to estate planning is no longer appropriate. The current interplay of estate and income taxes can be difficult to navigate.

In addition to a federal tax, estates of New York residents are subject to a state tax. The exemption per individual in New York is as follows:

• For descendants dying between April 1, 2015 and March 31, 2016: $3,125,000
• For descendants dying between April 1, 2016 and March 31, 2017: $4,187,000
• For descendants dying April 4, 2017 and Dec. 31, 2018: $5,250,000

In subsequent years, New York’s state exemption will be indexed for inflation so that it mirrors the federal estate tax exemption. But if an estate is valued at 5 percent or greater than the current exemption ($3,125,000 in 2015), the entire estate is subject to a tax. New York does not have a gift tax.

Assets included in the estate receive a step-up in basis to fair market value at the time of death. This effectively eliminates the federal income taxes attributable to gain realized on a descendant’s property. On the other hand, when assets are gifted, their value carries over to the person receiving the gift. Thus, any future income tax liability is also passed to that party.

Before 2012, when the estate tax was imposed on a decedent’s property over $675,000, the objective of estate planning was to transfer property out of the gross estate during the individual’s lifetime to avoid the estate tax.

Under current law, many estates will not be subject to any federal or New York estate taxes. Thus, a heightened focus on income tax planning has emerged for modest estates.

Since, combined federal and state estate tax rates can be as high as 50 percent, taxpayers subject to the estate tax should consider all options available to reduce these payments.

Daszkowski, Tompkins, Weg &
Carbonella CPA P.C.
1303 Clove Road, Staten Island
718.981.9600 / wdcpa.com