Estate Tax Planning


Both New York State and the federal government impose an estate tax on the value of an individual’s estate upon death.  The federal estate tax exemption amount of $5,000,000 was made permanent in 2013 and is subject to annual adjustments for inflation.  Currently, the federal estate tax exemption amount is $5,450,000 (2016).  In addition, the law allows a surviving spouse to use any unused estate tax exemption amount of a predeceased spouse. 

The New York State estate tax exemption amount is currently $4,187,500 (as of April 1, 2016).  This amount is scheduled to increase until 2019, at which point the state estate tax exemption will mirror the federal exemption, with cost of living adjustments, as follows:

Individuals dying on or after:                                     Tax exemption:

April 1, 2016 & before April 1, 2017                        $4,187,500

April 1, 2017 & before January 1, 2019                    $5,250,000

January 1, 2019 & thereafter                                     Will match the current federal exemption

The rate at which estates are taxed in New York is much lower than the federal rate of 40%. The state tax rates start at 5% and go up to 16%.  One thing to note, however, is the New York State estate tax “cliff.” Once the taxable estate exceeds the exemption amount by 5%, the entire estate becomes taxable, not just the amount over the current exemption amount.

The value of your estate for estate tax purposes includes everything that you own or hold in your name, whether individually or jointly with someone else, as well as everything over which you have control.  This includes jointly held assets, life insurance proceeds (including group life insurance you receive through your union or employer), retirement accounts and assets in certain types of trusts that you created or that were created for your benefit.  Your estate will receive certain deductions, such as expenses incurred while administering your estate, debts paid after you pass away (including funeral expenses), assets that are left outright to your spouse (so long as your spouse is a United States citizen), and any assets left to a qualified charity. 


Gift Taxes

In addition to an estate tax, the federal government imposes a gift tax on gifts made by an individual during their lifetime.  The gift tax is imposed on the person giving the gift, not the person receiving the gift.  The estate tax exemption amount is also the lifetime gift tax exemption amount.   This means that your estate tax exemption amount will be reduced by the total amount of gifts you made during your lifetime.



Each year, you can make gifts to anyone you want, up to a certain amount per person, exempt from any gift tax.  This amount is referred to as the annual gift tax exclusion.  Lifetime gifts can help reduce your taxable estate.  Presently, a person may gift $14,000 per year ($28,000 for a married couple) to anyone without incurring federal or New York gift tax and without reducing the amount you can pass to your heirs at death. 

There are many tools at your disposal to help reduce or avoid estate taxes, but proper planning is essential to ensure your objectives are realized.