Inheritance Estate Tax Planning
If you are fortunate enough to retire with significant wealth, you may be interested in learning about our estate tax planning services. We can help you take advantage of the techniques that enable you to reduce estate tax burdens on your heirs.
Would you like to learn about minimizing the inheritance tax on your estate? Please contact a lawyer from Whitlock Canter LLC to arrange your consultation.
Federal and gift estate tax exemption
The federal estate tax exemption is the amount you can pass free of estate tax to your heirs. In addition, there is an unlimited “marital deduction” so that an unlimited amount can be left to a U.S. citizen spouse without any estate tax. The following is a schedule of the federal estate tax exemption based upon the year of death:
|2010||Federal estate tax repealed unlimited exemption with limited step-up in basis (extended election due 12/31/14) or $5 million with unlimited step-up in basis|
|2011||$5 million with portability of spouse’s unused exemption|
|2012||$5.12 million with portability of spouse’s unused exemption|
|2013||$5.25 million with portability of spouse’s unused exemption|
|2014||$5.34 million with portability of spouse’s unused exemption|
|2015||$5.43 million with portability of spouse’s unused exemption|
|2016||$5.45 million with portability of spouse’s unused exemption|
|2017||$5.49 million with portability of spouse’s unused exemption|
|2018||$11.18 million with portability of spouse’s unused exemption|
|2019||$11.4 million with portability of spouse’s unused exemption|
|2020||$11.58 million with portability of spouse’s unused exemption|
|2021||$11.7 million with portability of spouse’s unused exemption|
|2022||$12.06 million with portability of spouse’s unused exemption|
|2023||$12.92 million with portability of spouse’s unused exemption|
The federal estate tax laws are coordinated with the federal gift tax laws. An unlimited amount can be given to a U.S. citizen spouse during life or at death. The first $14,000 given to each person in each calendar year (referred to as an “annual exclusion”) does not reduce a person’s lifetime gift tax exemption. In addition, for married couples gifts can be “split” and treated as being made one-half (1/2) by each spouse, thus increasing the “annual exclusion” to $28,000 per year per recipient.
If the annual exclusion amounts are exceeded, a person begins to erode his or her lifetime gift tax exemption. If the lifetime gift tax exemption is exceeded, a federal gift tax of 40 percent is applicable on the excess. Any portion of the gift tax exemption used during a person’s lifetime reduces the estate tax exemption remaining at death. For example, if a single person made a gift of $414,000 to his son in 2013 and then died in 2014, the first $14,000 would be treated as an annual gift tax exclusion in 2013, and the remaining $400,000 would reduce the remaining gift tax exemption from $5.34 million to $4.94 million. When the person later died in 2014, $4.94 million of estate tax exemption would remain.
For 2011 and beyond, there is portability of federal estate tax exemption between spouses. This means that upon death a spouse can pass his or her unused exemption to his surviving spouse. This is accomplished by filing a timely federal estate tax return reporting the amount of unused exemption remaining.
State estate tax exemption
Prior to 2001, all 50 states had the same estate tax exemption. In 2001, the federal law phased out the credit for state estate tax exemptions and instead allowed a deduction for state estate taxes paid. Several of the states reacted to this change in the law and now the amount of estate tax applicable depends upon the state a person resides in at the time of their death.
In New Jersey, the estate exemption was $675,000 for 2016, $2 million for 2017 and effective January 1, 2018 the New Jersey estate tax was repealed.
The New York estate tax exemption is $4,187,500 for deaths between 4/01/16 – 3/31/17, $5,250,000 for deaths between 4/01/17 – 12/31/18, $5,740,000 for 2019, $5,850,000 for 2020, $5,920,000 for 2021, $6,110,000 for 2022 and $6,580,000 for 2023. The highest tax rate is 16%. There is an infamous “Cliff” so that once the taxable estate exceeds the exemption, the estate is tax as though there was no exemption. Like the federal estate tax law, the New York estate tax law allows an unlimited marital deduction for assets left to a spouse.
Florida and Delaware are among the 35 states that no longer have any state estate tax, making them a popular destination for retirement.
New Jersey inheritance tax laws
New Jersey is one of only 10 states that impose an inheritance tax based upon the relationship of the person who dies (the decedent) to the persons who inherit (the heirs or beneficiaries).
The following information summarizes the New Jersey Inheritance Tax Rates based upon the relationship of the heir to the decedent:
- Spouses, children, step-children, parents, grandchildren, other lineal descendants and charities are exempt.
- Brothers, sisters, wife or widow of a son, or husband or widower of a daughter — First $25,000 is exempt; 11 percent $25,000 to $1.1 million; 13 percent $1.1 million to $1.4 million; 14 percent $1.4 million to $7 million.
- All others — First $499 is exempt; 15 percent up to $700,000; 16 percent over $700,000.
For answers to your estate tax planning questions, contact our law firm to arrange your consultation today.