Some Observations Worth Noting from the Will Doctor

Tax Rates: For decoupled states like NY and NJ, (not Fla), the estate tax rates are higher.  In NY, after a deduction for state estate taxes paid (highest NY bracket is 16%), the net NY tax rate is 10.4%, so:
For New Yorkers, estate taxes are now 35% plus 10.4%=45.4%.

Of course, in NY, estate taxes are paid on the inheritance over $1 million in value.  The tax on the $4 million difference between what the IRS allows each spouse, and NY allows, is $391,600.  This state estate tax must be considered in decisions about how to use our newly enhanced tax benefits to avoid the unnecessary payment of this tax.

NY has no gift tax, so gift taxes in excess of 1) the annual tax free $13,000 per donee, and 2) the lifetime federal exemption of $5 million are taxed at the 35% federal rate only.

Because of the different ways that gift taxes and estate taxes are calculated, it STILL pays to make lifetime gifts to reduce potential estate taxes. The effective rate of taxes on gifts at a 35% estate/gift tax rate is now 25.926%. For New Yorkers, this is more significant, since the difference is from 45.4% to 25.926%.

Another point to make when considering lifetime gifts vs. waiting for the estate tax, is that for purposes of NY estate tax, previous (“adjusted”) taxable gifts are not included in the computation of the NY estate tax.

Posted in Status of Tax Legislation, WillPlan Blog.

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