Tax efficiency is an important factor for many people who are looking ahead toward the future. There is a federal estate tax that you may have to contend with depending on the size and scope of your estate.
For the rest of 2014, the federal estate tax credit or exclusion is $5.34 million. You can transfer this amount tax-free, but anything that you transfer that is in excess of this figure could be exposed to the federal estate tax. The top rate of the tax is 40 percent.
If you see a slightly different figure next year, this is because of an inflation adjustment. Under currently existing laws, the estate tax exclusion can be adjusted annually to account for inflation.
State-Level Estate Tax
A number of states in the union impose state-level estate taxes, and New York is one of them. The exclusion in the state of New York is lower than the federal exclusion at the present time, so you can be exempt on the federal level, but exposed on the state level.
There have been some recent changes to the New York state estate tax exclusion. Legislation was passed that will eventually result in the New York state exclusion being in line with the federal exclusion. However, this will take place gradually.
Until March 31st of 2015, the New York state estate tax exclusion is $2,062,500. The exclusion will then rise by $1.0625 million on April 1st of each year up until 2017, when the exclusion will be $5.25 million. On New Year’s Day in 2019, the New York state exclusion while be changed to match the amount of the federal estate tax exclusion.
The rate of the New York state estate tax is a progressive rate that depends upon the exact size of the estate. It starts at 5.085 percent; the maximum rate of the tax is 16 percent. The maximum rate would apply to estates that exceed $10,040,000 in value.
It should be noted that there is an unlimited marital estate tax deduction on the federal level and the state level. You do not have to use any of your exclusion to leave a tax-free bequest to your spouse if your spouse is an American citizen.
Because of the unlimited marital deduction, you can transfer unlimited resources to your spouse free of taxation.
Estate Tax Efficiency Strategies
These transfer taxes can significantly impact the financial legacy that you are leaving behind. Fortunately, there are estate tax efficiency strategies that can be implemented. The ideal course of action will vary depending on the circumstances.
If you would like to discuss your unique situation with a licensed professional, we can help. Our firm offers free consultations, and you can request an appointment through this link: Long Island NY Estate Planning Attorney.
Learn More at Forbes.com
To learn more about estate planning and elder law, visit our Forbes page: Forbes Contributor Mark Eghrari.