There is good news to report about taxation for a change, and we will pass along that information in this blog post. However, before we get into the specifics, we should provide some general information about how death taxes can impact residents of Westchester County.
Our area is a fantastic place to live, and it attracts many people who have been successful financially. In fact, Westchester County is the fifth wealthiest county in the state of New York, and it is in the top 50 nationally.
The accumulation of wealth is universally considered to be a very good thing, and it is, but estate taxes can enter the picture for high net worth individuals. These taxes can significantly impact the legacy that you would like to pass along to your loved ones.
First of all, there is the federal estate tax that is applicable all across the country. This tax can be applied on the portion of an estate that exceeds the amount of the exclusion or credit. For the rest of this year, the exclusion on the federal level is $5.45 million. Every year there can be inflation adjustments, so you shouldn’t be surprised if you see a slightly larger figure next year.
There is no federal estate tax on asset transfers between spouses who are American citizens, regardless of sexual orientation. The unlimited marital deduction can be used to transfer any amount of money and/or property to your spouse in a tax-free manner.
In addition to the federal estate tax, some unlucky Americans are exposed to state-level estate taxes as well. The District of Columbia has its own estate tax, and there are 14 states with state-level estate taxes.
We practice in the state of New York, and New York is one of these 14 states.
Changes to the New York State Estate Tax
You could potentially be exposed to the New York estate tax even if you are exempt on the federal level, because the exclusion has been considerably lower for a number of years. However, due to a legislative act, the New York State estate tax exclusion has been rising each year.
The increase in the amount of the New York state estate tax exclusion for 2016 is coming up in a couple of months. At the time of this writing in February, the New York state estate tax exclusion is $3.125 million. The rate of the tax is a graduated rate that starts at five percent, and it maxes out of 16 percent.
On the first day of April, $1.0625 million will be added to the amount of the New York state estate tax exclusion. That will bring the estate tax exclusion up to $4.1875 million.
The ultimate objective behind the legislative measure was to eventually raise the New York state exclusion to match the amount of the federal exclusion. At the beginning of April of 2017, the New York exclusion will go up by another $1.0625 million, and that will result in a $5.25 million exclusion.
That number will remain in place until New Year’s Day in 2019. Between now and then, the federal estate tax exclusion will probably be increased from the $5.45 million that we have today after inflation adjustments are applied. The New York exclusion will be raised at the beginning of 2019 to match the federal exclusion that is in place at that time.
Many people in New York own property in other states. Even though the exclusion in our state is getting rather high, you have to be aware of potential estate tax exposure if you own property in a different state that has an estate tax on the state level.
For example, our neighbors in New Jersey have an estate tax to contend with, and the exclusion is the lowest in the country. The New Jersey state estate tax exclusion is $675,000. Even if you are a resident of New York, the New Jersey state estate tax could be applicable if you own property in New Jersey.
Ease the Burden
If your estate is going to be exposed to taxation on any level, there are things that you can do to ease the burden. The ideal tax efficiency strategy will depend upon the circumstances, but irrevocable trusts of various kinds are often part of the equation.
We can help if you would like to discuss your tax situation with a licensed professional. Our firm has assisted many people here in Westchester County who have been faced with estate tax exposure. We would be glad to gain an understanding of your situation and make the appropriate recommendations.
If you are ready to get started, give us a call at 914-939-6565 or send us a message through our contact page to set up a consultation.