Should you be concerned about Estate Tax?


If you drive a car, I’ll tax the street. If you try to sit, I’ll tax your seat. If you get too cold, I’ll tax the heat. If you take a walk, I’ll tax your feet …” - George Harrison, Tax Man

I frequently tell clients if they have to worry about the estate tax, it’s generally a “good problem to have,” as that means their asset level is quite high. That was not the case however, 10-20 years ago when the estate tax limits were much lower and impacted many middle class families.

Anyone who has dealt with the tax laws knows there are a multitude of nuances, exceptions and so called loopholes that may apply to any given situation, therefore this article should not be taken or used as legal or tax advice. Certainly, if you believe your assets and estate may fall within the current parameters, you should consult with an estate planning attorney and tax or financial professional to thoroughly review your situation.

What Exactly is the Estate Tax? In short, the estate tax is the government’s way of saying you died with too many assets, and/or with assets that could not be fully valued or taxed except upon your death.

Generally speaking, when you die, the net worth of your estate is calculated by valuing your assets minus any liabilities. Assets can consist of anything of value including but not limited to cash, insurance, real estate, stocks, bonds, annuities, brokerage accounts and business interests. These assets are brought to present fair market value to establish a “gross estate”.

Liabilities such as funeral and estate expenses, debts, mortgages and assets lawfully passing to a surviving spouse may all be deducted from your gross estate to come up with your “net estate”.

Will Your Estate be Impacted by the Estate Tax?  While the above may already sound a bit complicated, the good news is the estate tax effects very few people, especially beginning in 2018. According to the Tax Policy Center, in 2017 only 5,460 families in the U.S. – or 0.2 percent of all estates – were subject to the estate tax. That is because for 2017, the first $11.2 million per couple, or $5.6 million per person, of a net estate was already completely exempt from the estate tax. The Tax Policy Center also found that the top 10 percent of income earners pays nearly 90 percent of the tax, with over one-fourth paid by the richest 0.1 percent.

What Are the Current Estate Tax Limits? When President Trump signed the Tax Cut and Jobs Act effective January 1, 2018, the basic federal exclusion amount for 2018 increased to $10 million per person before taking into account the necessary inflation adjustment.

As of the date of this article, the official IRS website states, “… the 2018 [estate tax exclusion] amount that includes the inflation adjustment has not yet been released”. However, it has been widely reported that the current federal exclusion amount has nearly doubled, to approximately $11.2 million per person and approximately $22.4 million per couple. This federal exemption amount remains in effect through 2025 unless there is further legislative action before then.

Not surprisingly, New York also imposes an estate tax. Fortunately however, the state limits have also increased over the past 20 years similar, although not identical to the federal limits. As of April 1, 2017, the New York estate tax exemption increased to $5.25 million per person and $11.5 million per couple, effective through Dec. 31, 2018. These amounts are expected to increase further in 2019 and be adjusted for inflation thereafter.  

By contrast, the federal estate tax from 1987 – 1997 was applicable to net estates of “only” $600,000 or more, which cast a far wider tax net over the population. It was not until the last 10 years or so that the limits started increasing dramatically. According to the IRS, the basic federal exclusion amounts have increased as follows: $1.5 million (2004-05), $2 million (2006-08), $3.5 million (2009), $5 million (2010-11), $5.12 million (2012), $5.25 million (2013), $5.34 million (2014), $5.43 million (2015), $5.45 million (2016) and $5.49 million (2017). New York State had similar increases during this time period.

While the 2018 estate tax limits effect far fewer people than in recent history, the importance of smart financial and estate planning cannot be emphasized enough. As the late, great Mark Twain said, “A tax is a fine for doing well, a fine is a tax for doing wrong.”  

A few examples of options available to assist in insulating assets from the estate tax are: moving certain assets into trust(s) so that they are not counted toward your net taxable estate upon death; setting up charitable foundations that survive your death; gifting assets during your lifetime to individuals, charities or other entities to reduce the value of your net estate; and planning for certain assets to shift to your spouse upon death into trust or otherwise.

Of course, all of these examples require careful review by tax and estate planning professionals before implementation to make sure federal and state tax law ramifications have been considered. 

James S. Rizzo is an attorney with the law firm of Hilton Estate & Elder Law, LLC, with offices in Rome, Utica, Boonville and Lowville. He can be reached at 315-624-9600 or for a confidential, free initial consultation.

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