Current Tax Rates: The top federal estate tax return is 40%. The top New York State estate tax return is 16%.

Federal Estate and Gift Tax Exclusion: In 2015, the federal estate and gift tax exclusion is $5,430,000. That means that no federal taxes will be due for gifts made during one’s lifetime that in total did not exceed this amount. Similarly, no federal taxes will be due for estates whose assets do not exceed this amount, even where assets are passed to children or other non-spouse beneficiaries.  

The New York State has an exclusion of $3,000,000. This number is set to increase annually, until it reaches the federal exclusion in 2019. The New Jersey State has the smallest estate tax exclusion in the country of $675,000.

Portability of Spousal Estate Tax Exemption: if a predeceased spouse did not fully utilize his or her $5,430,000 estate tax exemption, the surviving spouse can utilize the unused exemption of her predeceased spouse.  This benefit, however, is only available for federal returns, and not for New York State returns.

Marital Deduction: No estate tax is due on any property which passes from the decedent to his or her surviving spouse. However, this deduction is only available as long as the surviving spouse is a United States citizen. If the spouse is not a US citizen, then, to take advantage of this deduction, property should pass to a “Qualified Domestic Trust” for the benefit of the surviving spouse, at which point it becomes fully deductible. However, there are a lot of requirements that need to be fulfilled for the QDT.

Step Up in Basis: the basis of a property acquired from a decedent is its fair market value (FMV) at the time of death. The income tax benefit is always a consideration when planning for estate taxes. When the beneficiary sells the property, his capital gains tax will be calculated on the difference between the market value at the time of sale and the FMV at the time of sale. If these are close in time, little or no capital gains taxes may be due.

  • When a husband and wife own property as tenants by the entirety, one half of the property is included in the deceased spouse’s estate, resulting in a step up in basis as to one-half of the property.

  • Where there is a joint tenant other than a husband and wife, there is a full inclusion in the estate of the first to die and a corresponding 100% income tax step up, unless the survivor can prove that she supplied part or all of the consideration.

  • When an owner reserves a life estate in real property and transfers the remainder to another party, there is a 100% tax step up in basis upon the life tenant’s demise.

Disclaimer: This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney-client relationship.