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ArticleEstate Taxes: Still A Problem for New Yorkers

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Andrew Altfest and Keith Feinberg

By Andrew Altfest, MBA, CFP® and Keith Feinberg, JD, CFP®, Financial Advisor

Even If You Live Elsewhere, This Still May Affect You!

The turning of a new year can be a good time to re-examine estate planning issues that may affect you, especially if you live in the State of New York. The federal Tax Cuts and Jobs Act of 2017 put in place at the start of 2018 was beneficial for most large estates, but state estate tax regimes operate independently, and can have a very different impact. How do the two systems work in your favor — or against you — if you’re a New Yorker?

In November 2018, the Internal Revenue Service (IRS) announced that the inflation-adjusted federal estate and gift tax exemption would rise for 2019 to $11.4 million per individual, up from $11.18 million in 2018. That means an individual can now leave $11.4 million to heirs without paying federal estate or gift tax, while a married couple will be able to shield $22.8 million.

New York’s ‘estate tax cliff’

Over the past several years, many states have enacted legislation to increase estate tax exemptions to match the former federal exemption. As a result, there’s now a roughly $5 million gap between the federal and state estate tax exemptions in New York. An estate plan that centers entirely on leveraging the new, larger federal exemption could end up wildly exceeding the state exemption.

For New York State residents, the estate tax exemption is much lower than the federal one, at $5.74 million. If a New York resident dies with an estate valued at an amount falling between the New York and federal exemptions, the New York estate tax will be applied to the entire estate – a liability that can exceed $1M.

In most states, an estate is taxed on a percentage of the amount by which its value exceeds the state’s exemption. However, New York implements a “cliff rule”; if an estate exceeds the exemption by more than 5 percent (a buffer zone of only about $265,000), the exemption is effectively disregarded and the entire estate is subject to the estate tax. The estate “falls off the cliff.” With a top rate of 16 percent, an enormous tax bill can arise, if planned incorrectly or carelessly.

If your taxable estate is currently equal to or over the exclusion amount, or you believe that over time it will be, then the cliff could be a peril for your family.

For estates below the New York exemption, the cliff may not directly matter, but it’s still important to revisit your estate plan to make sure it reflects your wishes, your present circumstances and current law. Even if your estate is not currently taxable, or you live outside New York State, certain tax law changes may cause provisions of your estate plan to operate differently than originally intended. Altfest can provide trust and estate guidance, and work with your legal advisor to find the right structure for your estate.

Preparing your family for wealth

One of the most difficult, but important, parts of preparing your family for an inheritance is an open and frank discussion with your spouse, children, executors and trustees about the future.

In order to make this wealth transfer go smoothly, it’s critical to have a thoughtful and deliberate estate plan in place. For Altfest clients, estate plans often comprise a complicated and intricate series of maneuvers to shield the estate from excessive taxation and ensure beneficiaries receive and manage inherited wealth successfully. Remember that “failing to plan is planning to fail” when it comes to estate planning. Your Altfest advisor can work with your professionals to incorporate your wishes and the needs of your heirs long before the time for wealth transfer begins.

Review your plan before it’s too late

At Altfest, we want to help our clients avoid the agony of an outdated or improper estate plan. Perhaps you have an estate plan created years ago by the family attorney. Although the plan was sound and relevant at the time, your family situation, assets and tax laws have all undergone significant change. Maybe you have even been traumatized by having to administer a loved one’s estate because proper planning wasn’t completed. Is worrying about whether the same will happen to your heirs keeping you up at night?

When speaking with clients, we often receive the same questions: How will my estate plan work? Which document does which job? Will my family be forced to pay taxes? How can I make sure my family is equipped with the understanding, knowledge and support to administer my estate?

We often find that clients have not given enough thought to preparing their family to survive them. It’s incredibly important to involve surviving family members in discussions surrounding an estate plan. Doing so allows for open and frank discussion regarding changes to family situations, tax laws and even a client’s wishes for their assets. We can help clients and their families create, monitor and revise an estate plan so all parties feel comfortable and secure with the planned succession of assets.

Contact an Altfest advisor to discuss how we can address your specific estate planning needs.

 


 

Andrew Altfest, MBA, CFP®, President, is a leading voice on the firm’s Portfolio Action Group. He drives financial planning and investment strategies across the firm.  Andrew earned an MBA from Columbia University’s Graduate School of Business.

Keith Feinberg, JD, CFP®, Financial Advisor, works to help clients and their families achieve their goals by creating customized and comprehensive financial plans. He specializes in estate planning and tax planning. Keith earned a JD from St. John’s University School of Law.

 


 

The foregoing content reflects the opinions of Altfest Personal Wealth Management and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

Past performance is not a guarantee of future results. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.

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