New York Estate Planning Lawyer Blog

A somewhat “high brow” economic working paper has been making the rounds among estate planning attorneys, economists, financial planners, and policymakers in recent weeks. The article, viewable online in full, is entitled “Taxing More (Large) Family Bequests: Why, When, Where?”

While the paper is quite dense, the central themes are those often faced by current policymakers and affecting families as they plan their estate.

Essentially, the paper discusses a well-known taxation “puzzle.” Over the past few decades tax revenues from wealth transfers (i.e. estate taxes) have decreased. This is true both in the United States and elsewhere. At the same time, tax revenues based on lifetime gains have grown in recent years with no sign of stopping.

When most hear the phrase “estate battle” the mind immediately jumps to fighting between families. Sadly, in the tumult of a passing, it is not uncommon for even close relatives to disagree sharply over how an assets should be divided. However, estate fights can also refer to legal problems related to taxes and the IRS. Tax matters are intricately woven into estate matters, and when problems arise, you can be sure that the IRS will be ready to defend their position in court.

How Much Was Jackson’s Estate Worth?

To understand how these IRS estate battles often play out, one need look no further than continued wrangling over perhaps one of the largest estates in recent memory. Famed entertainer Michael Jackson died in 2009. However, the estate is still fighting with the Internal Revenue Service regarding how many taxes need to be paid.

This week we discussed the growing belief among policymakers that estate tax changes are on the way for New York. Governor Cuomo proposed changing the exclusion rate for the NY estate tax up to the federal level ($5.25 million now and pegged to rise with inflation). This would be accompanied by a lowering of the top tax rate from 16% to 10%. Altogether, this represents a positive step for those hoping for a simpler, smaller estate tax bite.

However, less discussed are other changes that the Governor propose be included with the tax overhaul. Specifically, as noted in a Wealth Management story from last week, taxation on gifts will be folded into these total estate calculations. The gift issue is important, because it may lead some New York resident to alter their long-term strategies immediately.

Gift Taxes in New York

The New York Times reported late last month on a growing trend across the country–discussions about lowering estate tax obligations on state residents. The estate tax is the bite the government takes out of an individual’s assets before they go to heirs. There are two layers of tax, at the federal and state level. Under current law, the federal tax kicks in on all assets over $5.34 million for individuals at a top rate of 40%.

But the federal tax is not the only concern of residents, because many individual states have their own tax, including New York. The New York tax starts far lower–at $1 million. This means that even those residents who have no concerns about the federal estate tax still must account for their obligation under state law.

Lower NY Estate Taxes