Tax Implications of Estate Planning

Sizing-up the Estate

Despite the title, this process is not meant to “value” the estate, but rather to help understand how the family elders are prepared for the next steps in aging.

It may help to start thinking about the size and complexity of the estate in order to prepare for the eventualities. Estates run from small easy affairs, through more complex sizable estates, to ones that are large and complex but have no planning regarding wills and tax status. While this may be fine when the patriarch or matriarch are alive but things can quickly become unmanageable for the heirs.

Taxes

The idea of “Sizing-up the Estate” includes determining where the estate falls within Federal, State tax and administrative guidelines, whether a will or trust exists and whether the estate is managed by individual(s) or professionals.

Some general guidelines:

• Upon the first death of a married couple (Spouse 1) when you die and leave your estate to a surviving spouse, there is no estate tax due regardless of the size of your estate because of the unlimited marital deduction.
• The current Federal Unified Federal Estate Tax exemption for 2021 is $11,700,000. If the estate (gross) is valued at less that the current tax exemption amount, there should be no tax payable. For estates valued above the current threshold, there are marginal tax brackets ranging from 18-40%. However, an estate will still need to file a federal tax return if it receives income over $600 within the past year.
• The Federal Unified Federal Gift and Estate Tax exemption for 2023 is $17,000.
• States do have lower limits for estate tax exemptions with New York’s current limit being $6,850,000, Connecticut is $9,100,000. There is no requirement for New Jersey residents as of 2018. Above these amounts NY has marginal tax brackets ranging from 3.06% to 16%, while Connecticut’s marginal rates range from 10-12%.
• There is no "gift tax" in NYS but any gift made within the three years of death will be added back to the estate for valuation purposes.
• The Connecticut Gift tax limits matches that of the Federal limits.