Estate tax is a tax that is collected on the transfer of one's assets after death. It is determined by adding all of the decedent's date-of-death assets and then applying an various credits and deductions. It is not a tax on the sums received by a beneficiary of the estate.
Is This A Federal Tax Or A State Tax?
There are separate federal and state estate taxes. This Guide addresses both United States Estate Tax and New York State Estate Tax.
Didn't Congress Repeal The Federal Estate Tax?
It gets confusing. The estate tax reduced over a period of years until 2010, when there was to be no federal estate tax unless Congress reinstated it. In the last two weeks of 2010, it was reinstated, essentially retroactive to January 1, 2010, and was imposed for the period ending December 31, 2012.
What Happens Starting January 1, 2013?
We don't know yet, but if Congress does not act before that time, the federal estate tax exemption will drop all the way down to $1,000,000 and the estate tax rate will jump up to 55%, the same rate as in 2001 and 2002. That would be an extraordinary increase in the number of estates that would have to pay estate tax . . . and at very high rates.
How Much Is Federal Estate Tax?
The new top rate is 35%. The old top rate was 55%. The new exemption amount is $5 million per person for estate, gift, and generation-skipping taxes. That means that the vast majority of estates will not be hit by the federal estate tax. The estate tax is now "portable" between spouses, effectively raising the exemption to $10 million for a married couple. This means that if a spouse dies, the surviving spouse may use the portion of the estate tax exemption that was not used by the predeceased spouse.
How About Gift Tax?
As I said, the new $5 million lifetime exemption applies to gift taxes. But the annual exclusion for tax-free gifts remains $13,000 per donor. A donor can make an unlimited number of gifts of up to $13,000, as long as those gifts are to different individuals. A married couple can give $26,000 a year per done. Thus, a married couple with two children can give away $52,000 a year to their children. Gifts of tuition and payment for medical care also are exempt, so long as those payments are made directly to the provider. Unless Congress acts, the old estate tax rate of 55 percent will return in 2013 for estates and lifetime gifts.
What About State Estate Tax?
Many states collect estate taxes. Some even have inheritance taxes, which are taxes imposed on those who receive assets through an estate. New York has a state estate tax, but no inheritance tax.
What Do I Need To Know About New York State Estate Tax?
New York has retained for 2011 the same $1 million exclusion as was in effect for 2009 and 2010. For estates of persons who were New York residents at the time of death and those who were U.S. citizens or resident who had property in New York at the time of death, the estate must file a New York State estate tax return if the total of the federal gross estate plus the federal adjusted taxable gifts and specific exemption are more than $1 million.
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