Sugarman News & Articles

By Bruce M. Poushter, Esq.


In December, 2010, the Federal Estate and Gift Tax provisions were amended. The Estate and Gift Tax exemptions are now $5,000,000.00 per person and $10,000,000.00 per couple for 2011 and 2012. The tax rate on the non-exempt amount is set at 35%. The 2012 exemptions amounts are also indexed for inflation.

For estates of decedents who died in 2010, the new exemption amounts and the 35% rate are retroactive. However, an estate can elect to be taxed under the then existing law, which provided for no estate tax, but limited carry over basis. With limited carry over basis, the basis of many assets are not stepped up at death. This results in higher income taxes at a date in the future, when the assets are sold.

The new law introduces a new concept of portable unused estate tax exemptions. The unused portion of a married couple’s $5,000,000.00 exemption is passed on to be added to the $5,000,000.00 exemption of the second to die. In this manner, the couple is able to use the full $10,000,000.00 exemption ($5,000,000.00 each) without engaging in complex estate planning. Although exemptions are more generous than previous law, they do sunset at the end of 2012. After the law sunsets the exemptions go back to the restrictive $1,000,000.00 exemptions.

New York State’s estate tax will not change as a result of the passage of the new legislation. New York’s estate tax exemption amount remains $1,000,000.00. The top New York estate tax rate is 16%. Accordingly, there is still a need to consider New York State estate tax planning when drafting Wills or Codicils. There is no gift tax in New York.

The new $5,000,000.00 Federal exemption is combined for gift and estate purposes. This coupled with the fact that there is no New York gift tax makes gifting more attractive. The Federal annual exclusion amount for gifting will be $13,000.00 per gift in 2011. Gifts above $13,000.00 may require the filing of a gift tax return, but no tax is payable until the amount of the gifts exceed $5,000,000.00.

The new law offers significant planning opportunities for those with substantial estates. The new rules for portability of the estate tax exemptions also offer an opportunity for simplifying existing Wills.

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