The federal estate tax is a tax that is placed on a person’s estate after death.
While many people are familiar with this general concept, they have a number of more specific questions about what the federal estate tax does and does not include.
For one, many people confuse estate taxes with income taxes. One difference between these two is that estate taxes are not a tax placed on a person’s income.
When Federal Estate Tax Applies
In 2019, a federal estate tax is due for all estates with assets of at least $11,400,000. If a person dies with an estate under this value, no estate tax is placed on the deceased individual’s assets.
The reason why this threshold is so large is the result of tax laws that became effective in 2018. Prior to this, the federal estate tax was approximately $5 million adjusted for inflation.
For purposes of estate planning, however, it is important to remember that the federal estate tax will return to $5 million on January 1, 2026.
What Assets are Included in a Person’s Gross Estate
Assets in a person’s estate as well as those assets that a person has control over are included in their gross estate.
Items like bank accounts, bonds, business interests, jewelry, real estate, and stocks are some of the most common types of assets in a person’s estate.
It is a common misconception that if a person is able to avoid probate, they will also avoid estate tax. In reality, assets that escape probate are almost always still part of a determination of whether a person qualifies for estate tax.
The Role of Marital Deductions
As part of estate planning and associated taxes, it is important for a person to understand that if they are married to a citizen of the United States, they will receive an unlimited marital deduction for any assets that are left to their spouse.
This is one potential way to escape an estate tax. It is important to understand, however, that a person is not actually escaping an estate tax but instead delaying the date which taxes must be paid on the assets.
New York’s Estate Tax Law
Similar in nature to the federal estate tax, the New York estate tax threshold was $5.25 million in 2018 and was raised to $5.49 million in 2019. The amount is scheduled to gradually rise each year in accordance with inflation.
The rate at which assets over this threshold are taxed is graduated. The state uses a 3.06% interest with lower amounts and goes up to 16%.
While this is the state’s estate tax, there is no inheritance tax in New York. This means if a person receives money from a relative, they are almost always not required to give any of this amount to New York state.
Speak with a Knowledgeable Estate Planning Lawyer
There are a number of strategies that can be followed to reduce the amount of federal estate tax that a person ends up paying. If you need the assistance of an experienced federal estate tax lawyer, do not hesitate to contact Ettinger Estate Planning today.