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Possible Estate Tax Jump for Wealthy

Posted on: November 8th, 2014
tax planningAmerican taxpayers with estates valued in the millions and above may face a larger federal estate tax rate. The current exemption is $5.34 million, with a rate of 40%. Senate Bill 2899 is under review by lawmakers - it would increase estate taxes as follows:
 
  • 40% estate tax on estates valued from $3.5 million to $10 million
  • 50% estate tax on estates valued from $10 million to $50 million
  • 55% estate tax on estates valued over $50 million
  • 10% surtax on estates valued over $1 billion

Earlier this year, Bill and Hillary Clinton’s tax planning moves made headlines. After supporting a hike in the federal estate tax, the Clintons utilized special trusts to reduce their estate tax burden. Advanced planning with a tax lawyer helps taxpayers minimize the tax their estates may have to pay. 

Without using certain trusts and other planning techniques, nearly half a wealthy individual’s estate may be lost in taxes. One visit with a tax attorney is not necessarily adequate when preserving wealth for future generations. Develop a comprehensive plan and meet annually with a tax attorney to ensure proper tools are being used to reduce a taxable estate to the fullest extent possible. Legislation changes, family needs, and other circumstances may change over time and a tax plan should be adjusted accordingly.

For our clients in New York, the pending federal estate tax change is just one area of concern. Earlier this year New York changed several tax laws, parts of which have created a “tax cliff”. Estates valued over 105% of the exemption in New York ($2,062,000 as of this writing through March 31, 2015) do not qualify for the state estate tax exemption. The amendments do not provide for spousal portability, which means unused exemptions will remain unused when an individual passes away. Federal law currently allows a surviving spouse to elect to use the deceased spouse’s unused exemption – this would continue if the proposed changes pass. These are a few reasons why it is important to make a plan in advance to address tax issues that could significantly affect loved ones after an individual passes away.
 
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