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Plan Now to Minimize Impact of Estate and Gift Taxes

Published December 28, 2020

By Amy C. O’Hara, CELA

It is essential for families with significant wealth to be aware of estate and gift tax limits. An important part of estate planning is making sure that as much of your wealth as possible goes to your heirs rather than to pay taxes.

The good news is that both the federal and New York State estate tax exemptions have risen quite a bit over the last several years. These are the amounts which can be left to one’s heirs tax free. Under current law the federal gift tax and estate tax are linked, so you can make gifts to your heirs during your lifetime, but they also count against the overall federal estate tax limit remaining at your death.  While New York does not have a gift tax it does claw back any gifts made within the three years prior to your death to determine the amount of New York State estate taxes due.

The bad news is that the federal estate and gift tax exemption may change with the new Biden administration. While the Internal Revenue Service recently announced that the 2021 federal estate and gift tax exemption will be $11.7 million per person with an estate tax rate of 40% for any amounts over this exemption, President-Elect Biden has proposed significant reductions in the estate and gift tax exemption with exemptions of $3.5 million per person for the estate tax and $1 million for the gift tax with a tax rate of 45% for any amounts over these exemptions.

If your net worth exceeds these potential limits, the time to start or review your gift plan is now to take advantage as the IRS has confirmed it will not claw back lifetime gifts if or when the exemption is lowered.  Various irrevocable trust structures can be utilized to effectuate your plan.

Separate from the lifetime gift exemption is the annual gift tax exclusion. For 2021, the annual exclusion will remain at $15,000. This amount can be given tax free to as many individuals as you wish, and these gifts do not count against your lifetime gift exemption. In addition, you can make unlimited direct payments for medical and tuition expenses tax free.

New York State has also raised its estate tax exemption for 2021 to $5,930,000.  However, it is important to be aware that New York State taxes not only the amount over the exemption but the full value of the estate for estates that exceed the annual exemption amount. Thus, you can face a taxation cliff if you die with an estate valued at just above the state exemption amount.

It is not too late to start planning. At the New York estate planning law firm, Littman Krooks, LLP, we have over 30 years of experience helping families with estate and gift tax strategies. We pride ourselves in providing an exceptional level of service to individuals of varying net worth. To learn more about how our dedicated team of attorneys can assist your family with its unique needs, call (914) 684-2100 to schedule a no-obligation consultation today.

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