February 1, 2019. Sen. Bernie Sanders of Vermont has introduced legislation that would reform the federal estate tax. Currently, an individual is entitled to a combined lifetime gift and estate tax exemption of $11,400,000. The federal tax is 40% on gifts and estates that exceed this threshold.
Sen. Sanders’ bill would reduce the combined lifetime gift and estate tax exemption to $3,500,000. It would impose a 45% tax on the value of an estate between $3,500,000 and $10,000,000, a 50% tax on the value of an estate between $10,000,000 and $50,000,000; a 55% tax on the value of an estate between $50,000,000 and $1,000,000,000, and a 77% tax on the value of an estate above $1,000,000,000.
New York has announced that the estate tax exemption for deaths in 2019 will be $5,740,000.
Estate Tax page from Department of Taxation and Finance in New York State
May 21, 2018. On May 15, 2018, Connecticut increased its estate and gift tax exemptions. The exemptions are as follows:
thereafter equal to federal exemption, currently $11,180,000
The recently passed budget contains, among other things, an increase to the Connecticut estate tax exemption that will be phased in over several years. For decedents who die in 2018, the exemption will be $2,600,000; for decedents who die in 2019, the exemption will be $3,600,000; for decedents who die in 2020 or thereafter, the exemption will be equal to the federal estate tax exemption.
The IRS recently announced inflation adjustments for more than 50 tax provisions. Among these are that the federal estate tax exclusion for a decedent who dies in 2018 will be $5,600,000. The annual gift tax exclusion for 2018 will be $15,000.
In the https://www.treasury.gov/press-center/press-releases/Documents/Tax-Framework.pdf (Sept. 27, 2017), the President and Congressional Republicans provided a framework of their tax reform proposal, which includes repeal of the estate and generation-skipping transfer taxes. The proposal would:
House and Senate Republicans recently introduced legislation to repeal the federal estate tax. The legislation would repeal the estate tax and the generation skipping tax. The gift tax would be retained, however the top tax rate would be reduced to 35%. The present step up in basis rules would be retained so that if a decedent's assets were sold, the heirs would pay income tax only on post date of death appreciation.
The IRS recently issued regulations that affect the reporting responsibilities of an estate executor or administrator. If an executor is required to file a federal estate tax return, they must also file with the IRS a separate form stating the value of certain items included in the decedent's estate. Each beneficiary who receives property from the decedent must receive information regarding the property he or she receives or could receive. This requirement applies to all estates if the required estate tax return is filed after July 31, 2015.
Governor Malloy of Connecticut has proposed a budget for the 2018-2019 fiscal year that would change the state estate tax exemption so that it matches the Federal exclusion. This would increase the exemption from the current $2,000,000 to approximately $5,500,000 over three years.
For many years, wealth preservation entailed aggressively transferring assets out of the estate of high net worth individuals to avoid estate taxes and consequently giving up a "step up" in basis adjustment for income tax purposes. Because the estate tax rates were significantly greater than the income tax rates, avoiding estate taxes was the primary focus of tax based estate planning. The new tax landscape is transformed by increased income tax rates and increased federal estate tax exemptions. It is clear that increasingly the focus of wealth preservation will move away from avoiding estate taxes and be more focused on avoiding income taxes. Much of the wealth preservation analysis will be about measuring the estate tax cost against the income tax savings of allowing the assets to be subject to estate taxes. Asset protection techniques will continue to be an important part of wealth preservation planning.
Mr. Hendel has been practicing wealth preservation planning for over thirty years.