Q: Can you tell me about any updates to estate and gift taxes for 2019?
A: The Tax Cuts and Jobs Act (the “Act”) increased the federal estate tax exclusion amount for decedents dying in years 2018 to 2025. The exclusion amount is for 2019 is $11.4 million. This means that an individual can leave $11.4 million and a married couple can leave $22.8 million dollars to their heirs or beneficiaries without paying any federal estate tax. This also means that an individual or married couple can gift this same amount during their lifetime and not incur a federal gift tax. The rate for the federal estate and gift tax remains at 40 percent.
There are no 2019 changes to the rules regarding step-up basis at death. That means that when you die, your heirs’ cost basis in the assets you leave them are reset to the value at your date of death.
The Portability Election, which allows a surviving spouse to use his or her deceased spouse’s unused federal estate and gift tax exemption, is unchanged for 2019. This means a married couple can use the full $22.8 million exemption before any federal estate tax would be owed. To make a portability election, a federal estate tax return must be timely filed by the executor of the deceased spouse’s estate.
For 2019, the annual gift tax exclusion remains at $15,000. This means that an individual can give away $15,000 to any person in a calendar year ($30,000 for a married couple) without having to file a federal gift tax return.
Despite the large Federal Estate Tax exclusion amount, New York State’s estate tax exemption for 2019 is $5.74 million. New York State still does not recognize portability. Interest on late payments has increased to 8.5%. Interest on refunds or overpayments has increased to 5%. This means in it vastly advantageous to overpay any anticipated tax, rather than to underpay.
New York has also eliminated the three year look back on gifts. This means that any gifts made after January 1, 2019 will not be taxable in New York if a person dies within three years after making the gift. However, this may be short-lived as the Governor’s proposed budget includes reinstating the three-year lookback.
Most taxpayers will never pay a federal or New York State estate tax. However, there are many reasons to engage in estate planning. Those reasons include long term care planning, tax basis planning and planning to protect your beneficiaries once they inherit the wealth. In addition, since New York State has a separate estate tax regime with a significantly lower exclusion than that of the Federal regime it is still critical to do estate tax planning if you and/or your spouse have an estate that is potentially taxable under the New York State law.
-- Nancy Burner, Esq and Kera Reed, Esq.