There is a federal estate tax credit or exclusion. This is the amount that can be transferred tax-free. Asset transfers that exceed this amount are potentially subject to the estate tax.
The federal estate tax exclusion was set at $5 million for the 2011 calendar year. Each year since then there have been adjustments to account for inflation. After a series of adjustments, the federal estate tax exclusion is $5.34 million in 2014. The top rate of the federal estate tax is 40 percent.
We should point out the fact that the $5.34 million exclusion applies to transfers to people other than your spouse. There is an unlimited spousal estate tax marital deduction. If you are married, you can transfer any amount of money and/or property to your spouse free of taxation.
Internal Revenue Service Form 706
If an estate is exposed to the federal estate tax, a federal estate tax return must be filed. The specific form is Internal Revenue Service Form 706. This form must be filed within nine months of the passing of the decedent in question. Any taxes that are due should be paid within this nine-month time frame, but you can request a six-month extension.
Estate Tax Exclusion Portability
Relatively recent changes to the tax code have made the estate tax exclusion portable between spouses. Because the estate tax exclusion is portable, after you pass away, your surviving spouse could use your exclusion.
He or she would have his or her own exclusion, so the total available exclusion would be $10.68 million using the figures that are in place for 2014.
Though portability is available, it is not automatic. To take advantage of this opportunity, IRS Form 706 must be filed within nine months of the passing of the decedent, even if there are no taxes due at that time. Once again, a six-month extension would be granted if the appropriate request was submitted.
New York State Estate Tax Return
We practice law in the state of New York. There is a state-level estate tax in the Empire State. The amount of the estate tax exclusion in New York is $2,062,500 through March 31st of next year. At that time, the exclusion will go up by a little over $1 million. It will continue to rise annually until it matches the amount of the federal estate tax exclusion.
A New York State estate tax return must be filed within nine months of the decedent’s passing. This would be done through the filing of New York State Form ET-706.
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If you would like to learn more about estate taxes, contact us through this link to schedule a free consultation: Smithtown NY Estate Planning Attorney.