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A Federal and New York State Estate Tax Overview

A Federal and New York State Estate Tax Overview

Posted on 02/09/2015

 A Federal and New York State Estate Tax Overview

contributed by Bernadette E. Tuthill, esq.
Twomey, Latham, Shea, Kelley, Dubin & Quartararo, LLP


 The American Taxpayer Relief Act of 2012 (“ATRA”), signed into law January 2, 2013, provides that an individual may transfer up to $5,000,000, adjusted for inflation, without incurring estate or gift taxes. This provision is commonly known as the “applicable exemption.” This amount is adjusted for inflation every year resulting in an applicable exemption amount of $5,430,000 for 2015.  The value of a person's estate exceeding the applicable exemption is subject to an estate tax rate of up to 40%.


The New York State applicable exemption for estate tax purposes was increased to $2,062,500 on April 1, 2014 and is scheduled to increase every April 1st from 2015 through 2019 when it will match the Federal Exemption amount.  However, once your estate exceeds the New York exemption by 5%, you receive no exemption at all from New York estate tax.  New York State imposes an estate tax of up to 16%.


Your taxable estate, for purposes of calculating the estate tax, includes every asset titled into your name, despite whether there are beneficiary designations, joint owners, or otherwise.  This includes, but is not limited to, real estate, investment accounts, bank checking and savings accounts, CDs, notes receivable, life insurance, interests in entities (Limited Liability Companies, Corporations, Partnerships, etc.), annuities, retirement accounts, and, in some specific instances, items held in trust.  If your estate is over the above exemption amounts, an estate tax return needs to be filed, but it does not necessarily mean that there will be a tax due.  In addition, New York State requires that gifts made within three years of death be added back to your estate for estate tax purposes.


One’s debts, as well as the expenses of administering the estate, are allowable deductions for the estate tax return.  Additionally, if you are married, assets passing to your surviving spouse upon your death do not incur an estate tax.  This provision is known as the “marital deduction.”  By utilizing the marital deduction, it is possible to avoid all federal and New York State estate tax upon the death of the first spouse.  However, this is not always the most tax efficient plan.  With proper planning, incorporation of one or more trusts will assist in minimizing estate taxes. 


The types of trusts which would be appropriate vary on a case by case basis.  You should contact your estate planning attorney to determine whether or what types of trusts you should consider for your estate plan based on your particular set of circumstances.

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