New Year, New Estate Planning Laws. Do You Know The Rules?
Lou Karol, ESQ. | May 15th, 2009This year, it will be extremely important for everyone to review their estate plan. The substantial drop in both the financial market and the housing market as well as the increase in certain federal estate tax credits and exemptions may significantly impact your current estate plan.
FEDERAL ESTATE AND GIFT TAX AMOUNTS.
A. Federal Estate Tax Applicable Exclusion Amount\Tax Rate
The Federal estate tax applicable exclusion amount for 2009 is $3,500,000 which is substantially in excess of last year’s $2,000,000 amount. For individuals dying in 2009, the top estate tax rate is forty-five (45%) percent.
B. Federal Lifetime Gift Tax Exemption
The Federal lifetime gift tax exemption has not changed. The amount continues to be $1,000,000 per person (i.e., donor).
C. Federal Gift Tax Annual Exclusion\Other Exclusions
The Federal gift tax annual exclusion has increased to $13,000 from last year’s $12,000 for present interest gifts to each donee-recipient. The annual exclusion amount permits spouses to transfer, in each calendar year, a total of $26,000 per donee-recipient without gift tax consequence. In addition to annual exclusion gifting, which has no gift tax consequence, each donor can make gifts for “tuition” and “medical expenses” in an unlimited amount without gift tax consequences provided the payments are made directly to the school or medical care provider.
It is important to know that you may also enter into “prepaid tuition agreements” with private schools and/or colleges to ensure that tuition is paid. If done correctly, the amount paid will be excluded from the payor’s estate for federal estate tax purposes.
With regard to educational gifting, an individual is allowed to “pre-pay” gifts for up to 5 years which allows a total of $65,000 to be contributed to a 529 educational account ($130,000 per married couple). Please note that a federal gift tax return (Form 709) needs to be filed even though no taxes will be due.
If one spouse makes a gift in excess of $13,000 then both spouses must file a Federal gift tax return(i.e., a split gift tax return) to avoid the imposition of a gift tax.
D. Gifts to Non-US Citizen Spouse
The amount of gifting a spouse can make to a Non-US citizen spouse per annum has been increased to $133,000 for calendar year 2009. As a reminder, if only one spouse is a U.S. citizen specific laws apply which do not apply when both spouses are citizens of the U.S..
STATE ESTATE AND GIFT TAX LAWS
A. New York
New York’s applicable exclusion amount for estate taxes remains at $1,000,000. New York State does not have a separate gift tax.
B. New Jersey
New Jersey has a limited inheritance tax and applicable exclusion amount for estate taxes. With respect to the inheritance tax, no tax will be imposed on transfers to a spouse, parent, grandparent, child or other direct lineal descendent of the decedent. For estate tax purposes, the applicable exclusion amount remains at $675,000. New Jersey does not have a separate gift tax.
C. Connecticut
Connecticut has a unified gift and estate tax that applies to gifts made, and estates of decedents dying, on or after January 1, 2005. The Connecticut unified estate and gift tax exemption amount is currently $2,000,000.
D. Florida
Florida has no independent estate or gift tax. In 2007, Florida repealed its Intangible Tax (which was a tax imposed on certain intangible assets such as bonds, stocks, mutual funds and money market accounts).
E. North Carolina and South Carolina
North Carolina imposes an estate tax on a decedent’s estate in excess of $2,000,000 as well as a separate gift tax on lifetime gifts in excess of the annual exclusion limits aggregating an amount in excess of $2,000,000. South Carolina is similar to Florida and has no separate estate or gift tax.
SPECIAL NOTE
It is important for clients to review their estate plan in light of the increasing federal exemption amount (current $3,500,000). If your Will is structured to take full advantage of the federal estate tax credit then the surviving spouse will need to be prepared to pay New York State the sum of $229,200 in estate tax (New Jersey residents will pay the same amount). Last year, when the federal exemption amount was $2,000,000, the same Will provision created a tax of $99,600. This difference may be significant to many of our clients.
Further, clients should review their Wills to determine if bequests to children or grandchildren should be modified, if disproportionate distributions among children are still appropriate and distributions among various family members are still consistent with one’s financial ability and desires.
We highlight these points in light of everyones need to evaluate their financial position as well as to consider the impact that could have resulted because of a family member’s unemployment, illness, disability and/or divorce during the past year.
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Tags: estate planning, federal estate tax, federal tax exemption, gift tax amounts, lou karol
About the Author: Lou Karol is an attorney with Karol Hausman and Sosnik on Long Island. http://www.khspc.com/index.php
June 1st, 2009 at 5:06 pm
I know it can be time-consuming to update your blog but thank you for keeping me informed and entertained!