What is Estate Tax?
The estate tax is a tax that is imposed on property after your death, before it can be transferred according to the terms of your estate plan (or according to your state’s laws, if you don’t have an estate plan in place).
Most people are not subject to estate tax at all, because currently, there is an estate tax “exemption” for estates that are less than a certain amount. That means, if the value of all of the property you own at death is less than the estate tax exemption amount, your estate will not have to pay an estate tax.
A few states have no estate tax at all, and the amount of the exemption varies in each state.
What is a Gift Tax?
A gift tax is a tax that is imposed on property that you transfer during your lifetime, as a gift, without consideration.
Most people are not subject to gift tax at all, because currently, there is a gift tax “exemption” that allows you to gift a certain amount over your lifetime without having to pay any gift tax, and there is further, an “annual gift tax exemption” amount that allows you to make gifts that will not be counted towards your lifetime limit.
Most states do not have a gift tax, but some states have a “claw back” rule, including New York, that will “claw back” any gifts made within three years of death and add the value of those gifts to your estate value at death.
During your lifetime, the IRS allows you to make gifts to other individuals New York does not have gift tax, but will “claw back”, or include, any gifts made within three years of date of death when calculating the value of the estate for estate tax purposes. If an estate is more than 3% over that exemption amount (more than $6.9MM), the exemption is lost and the entire estate is taxed from dollar 1 (sliding scale up to 16%). There are strategies to reduce or even eliminate this tax with proper advance planning.
So what will these exemption amounts be in 2024?
Federal Estate and Gift Tax
Federal Estate and Lifetime Gift Tax Exemption will increase in 2024 to $13,610,000 per individual (from $12,920,000 million in 2023). This amount is portable, which means that a married couple has a combined exemption of over $27 million. This is the amount that an individual (or couple) can transfer without any estate or gift tax.
Federal Annual Gift Tax Exclusion
The Federal Gift Tax Exclusion amount will increase in 2024 to $18,000 per individual (from $17,000 in 2023). That means that the first $18,000 gifted to an individual is not counted towards lifetime gift amount, but anything above that gifted to the individual would be added to the lifetime amount.
New York State Estate Tax
The New York State Estate Tax Exclusion amount will increase to $6,940,000 in 2024 (from $6,580,000 in 2023). Unlike the Federal exemption, a married couple does not automatically get the benefit of double this exemption amount, but must plan in advance so that the surviving spouse doesn’t end up with an estate that is over the exemption amount. Further, unlike the federal estate tax, if an estate is more than 5% over the New York State exclusion amount, the entire estate is subject to estate tax, and the exemption is lost completely.
Be in touch if you wish to discuss your estate plan in light of these updates, we would be happy to help you!
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