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.
Representative Nita Lowey, a New York Democrat, recently introduced The Securing Access to Lower Taxes by ensuring Deductibility Act. The Act would repeal the limitations on the deductibility of state and local income and property taxes.
The 2017 tax act increased the federal combined estate and gift tax exmption to
$10,000,000, adjusted for inflation. With inflationary adjustment, the exemption for 2019 will be $11,400,000. On January 1, 2026, the exemption will revert back to $5,000,000, adjusted for inflation. The proposed regulations would provide that taxpayers who take advantage of the increased exemption will not be adversely affected by this decrease in the exemption. This means that a taxpayer who makes pre-2016 gifts to take advantage of the increased exemption will not be forced to pay estate tax on these gifts if the taxpayer dies after January 1, 2026.
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
According to the IRS in 2016, 5,219 families paid federal estate tax. The average size of an estate that paid tax was over $20,000,000. The average tax paid was approximately $3,500,000.
Now that the federal estate tax exclusion has been increased to $11,400,000 per person for deaths occurring in 2019, we can expect far fewer families to pay estate tax. The Tax Policy Center estimated that in 2018, only 1,700 families would owe estate tax.
Of course, many more families pay New York and Connecticut estate taxes. The New York estate tax exemption for deaths in 2018 is $5,250,000; the Connecticut estate tax exemption is $2,600,000.
"Only 1,700 Estates Would Owe Estate Tax in 2018 Under the TCJA" by Howard Gleckman
"SOI Tax Stats - Estate Tax Statistics" by the IRS
On November 15, the IRS issued annual inflation adjustments that cover over 60 items. The standard deduction for married taxpayers filing jointly will be $24,400.
The top income tax rate is 37 percent for individual single taxpayers with incomes greater than $510,300 ($612,350 for married couples filing jointly). The other rates are: 35 percent, for incomes over $204,100 ($408,200 for married couples filing jointly); 32 percent for incomes over $160,725 ($321,450 for married couples filing jointly); 24 percent for incomes over $84,200 ($168,400 for married couples filing jointly); 22 percent for incomes over $39,475 ($78,950 for married couples filing jointly); 12 percent for incomes over $9,700 ($19,400 for married couples filing jointly). The lowest rate is 10 percent for incomes of single individuals with incomes of $9,700 or less ($19,400 for married couples filing jointly).
The annual exclusion for gifts will be $15,000.
The combined estate and gift lifetime exemption will be $11,400,000 per person.
Rev. Proc. 2018-57
New York phases out its estate tax exemption for taxable estates that are between 100% and 105% of the estate tax exemption. The New York estate tax exemption is $5,250,000 for estates of decedents who die in 2018. This means that an estate of a decedent who dies in 2018 that is over $5,512,500 loses the benefits of the $5,250,000 exemption. As a result, beneficiaries of an estate between $5,250,001 and $5,728,101 actually inherit less than an estate of $5,250,000. The New York State Bar Association has proposed phasing out the New York estate tax exemption for taxable estates that are between 100% and 150% of the exemption amount.
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.
Mr. Hendel has been practicing wealth preservation planning for over thirty years.