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Estate Tax Planning

Federal Estate and Gift Taxes: $5.34 Million Dollar combined Tax Exemption
For Federal Gift Tax and Federal Estate Tax purposes, effective January 1, 2014, each individual has a $5.34 Million Dollar combined Tax Exemption (based upon the total of taxable lifetime gifts and the taxable value of their estate at death). This amount will be adjusted upwards for inflation in future years. This means that assets up to $5.34 Million Dollars can pass free of Federal Estate Taxes and Gift Taxes for any individual. A married couple can therefore pass twice that amount, either through their estates at death, or by making gifts during their lifetime. If one spouse doesn’t use their full exemption, their surviving spouse can use the remaining portion of the exemption, assuming a properly executed Estate tax return was filed for the first spouse to die. The values discussed in this section refer to the combination of taxable gifts and the taxable portion of an individual’s estate. To determine the taxable value of an Estate, one must reduce the Gross Estate for funeral and administration expenses and various debts. Further, there are some transfers to qualified spouses and charitable organizations which will further reduce one’s Taxable Estate, as they are exempt from Estate Taxes and Gift Taxes. For anyone with a potentially taxable estate who is not a tax or legal professional, there is substantial risk in planning your estate without qualified professional advice. The maximum tax bracket for Estates over $ 5.34 Million Dollars has now risen from 35% to 40%. It is important to note that the change in the law affects Federal Taxes only.

New York Estate Taxes: $ 2,062,500.00  Estate Tax Exemption:
Effective April 1, 2014,
Estates under $ 2,062,500.00 (Two million and sixty-two thousand and five hundred Dollars) are no longer subject to New York Estate Taxes. Estates over that amount remain subject to New York State Estate Tax. The new Federal Laws do not change this fact.  With proper planning for a couple, their combined $4,125,000.00 Estate would pay a total of $0.00 in New York State Estate Taxes. This is accomplished by asset retitling, asset splitting, and the use of “Credit Shelter Trusts.” These tools take advantage of the fact that each individual has a $2,062,500.00 exemption from paying Estate taxes in New York. Even if proper planning isn’t done before death, there are some instances where Estate Taxes can be reduced or eliminated by “post-mortem” planning. Post-mortem planning involves a surviving spouse and Executor pooling their efforts to use “qualified disclaimers” and other legal mechanisms, to reduce Estate Taxes. New York has no Gift Tax, but gifts that are taxable under federal law are, in some instances, added back in to an individual’s taxable estate  for computation of the New York Estate Tax. Note: The $ 2,062,500.00 exemption increases to $ 3,125,000.00 on April 1, 2015.

Income and Capital Gains Taxes: After December 31, 2012, there is an increase in individual income tax rates for single taxpayers earning more than $400,000.00 and married taxpayers earning more than $450,000.00. For taxpayers earning above these thresholds, the highest tax bracket increases from 35% to 39.6%. For individuals with income above these levels, the  maximum Capital  Gains tax rates rise to 20%  but  remains at 15% for those with lower incomes.

Investment Income Surtax: The Health Care and Education Reconciliation Act of 2010 added a new 3.8% Medicare Surtax on “net investment income.” for taxpayers with “net investment income”  of $200,000 for single filers and $250,000 for married couples filing jointly. As used in the Act,  “net investment income” includes interest, dividends, capital gains, retirement income and income from partnerships and other forms of “unearned income”.

PURSUANT TO IRS REGULATIONS, ANY TAX ADVICE CONTAINED IN THIS DOCUMENT IS NOT INTENDED TO BE USED, AND CANNOT BE USED, FOR PURPOSES OF AVOIDING PENALTIES IMPOSED BY THE INTERNAL REVENUE CODE OR PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTER OR TRANSACTION DISCUSSED HEREIN.

 

 

 
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Licensed in New York State
    The Witecki Law Office
(518) 372-2827
8 South Church Street
Schenectady, NY 12305
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