On November 15, the IRS announced the official estate and gift exclusion amounts for 2019 in Revenue Procedure 2018-57.

For an estate of any decedent dying during calendar year 2019, the applicable exclusion is increased from $11.18 million to $11.4 million.  This change increases not only the applicable exclusion amount available at death, but also a taxpayer’s lifetime gift applicable exclusion amount and generation skipping transfer exclusion amount.  This means a husband and wife with proper planning could transfer $22.8 million estate, gift and GST tax free to their children and grandchildren in 2019.   If no new tax law is passed, the increased exclusion amounts are scheduled to expire on December 31, 2025, which would mean a reduction in the exclusion amounts to $5 million plus adjustments for inflation.

The estate, gift and GST tax rate remains the same at 40% and the gift tax annual exclusion remains at $15,000.

The gift tax annual exclusion to a non-citizen spouse has been increased from $152,000 to $155,000.  While gifts between spouses are unlimited if the donee spouse is a United States citizen, there are restrictions when the donee spouse is not a United States citizen.

The New York exclusion amount was changed as of April 1, 2014, and does not match the federal exclusion amount.  In 2018, the New York exclusion amount is $5.25 million.  Beginning in 2019, the exclusion is scheduled to increase to $5.49 million, and then will increase with inflation each year thereafter.  It is important to note that, unlike the Federal exclusion amount, the New York exclusion amount is not portable, meaning if the first spouse to die fails to utilize his or her full exclusion amount, the surviving spouse will not be able to utilize the first spouse to die’s unused exclusion amount.

Experts have started to calculate the inflation adjustments to key estate and gift exemption amounts for 2018.  Note that these are not the official figures to be released by the IRS, but should be used as a guide.  The IRS will officially release the numbers later this year.

For an estate of any decedent dying during calendar year 2017, the applicable exclusion was increased from $5.45 million to $5.49 million.  This change increased not only the applicable exclusion amount available at death, but also a taxpayer’s lifetime gift applicable exclusion amount and generation skipping transfer exclusion amount.  This means a husband and wife with proper planning could transfer $10.98 million estate, gift and GST tax free to their children and grandchildren in 2017.  The projected 2018 adjustment to the applicable exclusion will increase from $5.49 million to $5.6 million which means that a husband and wife with proper planning could potentially transfer $11.2 million estate, gift and GST tax free to their children and grandchildren in 2018.

For 2017, the estate, gift and GST tax rate remains the same at 40% and the gift tax annual exclusion remains at $14,000.  For gifts made in 2018, the projected gift tax annual exclusion will be adjusted to $15,000 (up from $14,000 for gifts made in 2017).

The New Jersey Estate Tax repeal will be effective as of January 1, 2018.  The current $2 million exemption which increased on January 1, 2017 is set to be eliminated as of January 1, 2018.  Keep in mind that the New Jersey Inheritance Tax is still in effect. This is a tax imposed on transfers to beneficiaries who are not spouses, parents, children or grandchildren (i.e., nieces, nephews, siblings, friends, etc.) New Jersey Inheritance Tax rates start at 11% and go as high as 16%.

The New York exclusion amount was changed as of April 1, 2014.  Beginning April 1, 2014, the exclusion has increased as follows:

•           $2.0625 million for decedents dying between April 1, 2014 through March 31, 2015;

•           $3.125 million for decedents dying between April 1, 2015 through March 31, 2016;

•           $4.1875 million for decedents dying between April 1, 2016 through March 31, 2017;

•           $5.25 million for decedents dying between April 1, 2017 through December 31, 2018.  Beginning in 2019, the exclusion would be indexed for inflation, and equal to the Federal exclusion.

In 2017, the gift tax annual exclusion to a non-citizen spouse was increased from $148,000 to $149,000.  This is projected to increase to $152,000 in 2018.  While gifts between spouses are unlimited if the donee spouse is a United States citizen, there are restrictions when the donee spouse is not a United States citizen.

On October 30, 2014, the IRS released Revenue Procedure 2014-61, which announced inflation adjustments to the applicable exclusion amount beginning in 2015. For an estate of any decedent dying during calendar year 2015, the applicable exclusion is increased from $5.34 million to $5.43 million.  This change increases not only the applicable exclusion amount available at death, but also a taxpayer’s lifetime gift applicable exclusion amount and generation skipping transfer exclusion amount.  This means a husband and wife with proper planning could transfer $10.86 million estate, gift and GST tax free to their children and grandchildren in 2015.

The estate, gift and GST tax rate remains the same at 40% and the gift tax annual exclusion remains at $14,000.

While the New Jersey state exclusion amount remains unchanged at $675,000, the New York exclusion amount was changed as of April 1, 2014.  Beginning April 1, 2014, the exclusion is as follows:

  • $2.0625 million for decedents dying between April 1, 2014 through March 31, 2015;
  • $3.125 million for decedents dying between April 1, 2015 through March 31, 2016;
  • $4.1875 million for decedents dying between April 1, 2016 through March 31, 2017;
  • $5.25 million for decedents dying between April 1, 2017 through December 31, 2018.  Beginning in 2019, the exclusion would be indexed for inflation, and equal to the Federal exclusion.

The gift tax annual exclusion to a non-citizen spouse has been increased from $145,000 to $147,000.  While gifts between spouses are unlimited if the donee spouse is a United States citizen, there are restrictions when the donee spouse is not a United States citizen.

Other items of note that also are subject to inflationary adjustment in 2015 include the social security wage base, which increases from $117,000 in 2014 to $118,500 in 2015, and the maximum amount that can be deferred into a 401(k) from $17,500 to $18,000.

There have been important new developments for New York taxpayers over the past two months, some of which may require your immediate attention.

Increase in estate tax exemption.  Governor Cuomo’s January budget bill proposes significant changes to the New York estate tax.  The first change would increase the New York applicable exclusion amount from $1 million to $5.25 million over a four year period, and be indexed for inflation thereafter.  Beginning April 1, 2014, the exclusion would be:

  • $2.0625 million for decedents dying between April 1, 2014 through March 31, 2015;
  • $3.125 million for decedents dying between April 1, 2015 through March 31, 2016;
  • $4.1875 million for decedents dying between April 1, 2016 through March 31, 2017;
  • $5.25 million for decedents dying between April 1, 2017 through December 31, 2019.  Beginning in 2020, the exclusion would be indexed for inflation.

The top tax rate also would be reduced from 16% to 10% beginning April 1, 2017.

Lifetime gifts added back to estate.  Another significant change proposed in the budget bill is that all taxable gifts made by a New York resident after March 31, 2014 will be included as part of the New York gross estate for purposes of calculating the New York estate tax.  Currently, New York taxpayers will pay less New York estate tax if they make lifetime gifts, and the Governor’s proposal is designed to close this perceived loophole.  New York taxpayers who have an estate in excess of the federal applicable exclusion amounts and who are inclined to gift should consider doing so prior to April 1.

QDOTs.  For New York residents who are not US citizens, there is a new, favorable law regarding “qualified domestic trusts” or “QDOTs.”  These trusts can be required under federal law in order for a decedent’s assets passing to or for the benefit of a non-citizen spouse to qualify for the estate tax marital deduction.

The new law amends §951 of the New York Tax Law, and provides that, where a federal estate tax return is not required to be filed, it is not necessary to create a New York QDOT in order to obtain the New York State estate tax marital deduction, if the transfer would otherwise qualify for the federal estate tax marital deduction.  This is helpful in cases involving non-citizen spouses where the estate does not exceed the federal exemption amount (currently $5.34 million).  Thus, a New York individual who has less than $5.34 million in 2014 would now be able to leave assets to his or her non-citizen spouse outright and not trigger any New York estate tax.

Residency audits.  Finally, the New York Court of Appeals (New York’s highest court) issued a favorable decision regarding New York residency.

In Gaied v New York State, the taxpayer lived in New Jersey but maintained a home for his elderly parents in Staten Island and sometimes stayed there.  New York law provides that a statutory resident is someone who is not domiciled in New York but maintains a permanent place of abode in New York and spends more than 183 days of the taxable year in New York.  The issue therefore was whether the taxpayer’s home for his parents constituted a “permanent place of abode” as to him.

The Court of Appeals reversed the Appellate Division (and lower tribunals) and held that the taxpayer did not satisfy the permanent place of abode test and thus was not a statutory resident.  The court found that the taxpayer himself must have a residential interest in the property in order for it to be his place of abode.

This ruling provides more clarity for non-New York domiciliaries who maintain property in New York but do not reside in said property.

 

The fiscal cliff drama heading into the start of 2013 fortunately was not repeated as the calendar turned to 2014.  Having said that, as we now start 2014, it is important to highlight the following major estate and gift tax laws and changes made in 2014:

  1. The estate, gift and generation skipping transfer (“GST”) tax applicable exclusion amount has increased from $5.25 million in 2013 to $5.34 million in 2014.  This means a husband and wife with proper planning could transfer $10.68 million estate, gift and GST tax free to their grandchildren.
  2. The estate, gift and GST tax rate remains the same at 40%.
  3. New York and New Jersey state exclusion amounts remain unchanged.  The New York estate tax exclusion amount is $1 million and the New Jersey exclusion amount is $675,000.  As the disparity between the federal exclusion amount and the state exclusion amount increases, the need to carefully plan to not trigger unnecessary state estate taxes, grows as well.
  4. The gift tax annual exclusion remains at $14,000.
  5. Portability of the federal exclusion amount is permanent, meaning, the unused exclusion of the first deceased spouse may be used by the surviving spouse at his or her death.  For many reasons, including the fact that GST exclusions and state exclusions are not portable, it is critical to properly plan your estate to ensure maximum tax savings are achieved.
  6. The gift tax annual exclusion to a non-citizen spouse has been increased from $143,000 to $145,000.  While gifts between spouses are unlimited if the donee spouse is a United States citizen, there are restrictions when the donee spouse is not a United States citizen.