The federal estate tax is applicable after you utilize the entirety of your $5.25 million unified gift/estate tax exclusion. Yes, the gifts that you give throughout your life are taxable as well.
There is a $14,000 per person annual gift tax exclusion that exists outside of this unified exclusion. Once you give this much to one person in a given year you start using up your unified lifetime exclusion if you give more.
Imagine winning a Powerball lottery prize. In May there was a record-setting ticket sold, and the winner of such a jackpot would certainly want to speak to an estate planning attorney as soon as possible.
Let’s say that you won a $200 million Powerball jackpot. The lottery would withhold 25 percent of that to pay federal income tax, and as a New York resident you would have state income taxes to contend with as well.
That would shave down the fortune considerably, but then you have estate tax considerations. If you do nothing to position your assets with tax efficiency in mind the estate tax can strike after you pass away. The federal estate tax carries a maximum rate of 40%. As we touched upon above, only $5.25 million could pass before the tax is imposed.
In New York we have a state-level estate tax as well, and that exclusion is only $1 million. The maximum rate of the New York state estate tax is 16%.
Clearly, when you digest the above you see that you are not the only one who benefits if you win big in the lottery. Whether you like it or not, the tax man is your silent partner.
- These Trusts Satisfy Advanced Estate Planning Objectives - June 15, 2021
- Three Tips to Provide Inheritance Planning Insight - June 11, 2021
- Veterans Pension Can Defray Long-Term Care Costs - June 7, 2021