Estate Planning "Checkup"
By Stephen Lassar, Partner - Tax & Business Services and Stewart Pollak, Senior Manager - Tax & Business Services

Just as we should all be going to our family doctors as we get older to have a check up to make sure we are healthy and in good physical condition, everyone should also periodically have a financial checkup, including a review of your estate plan and your estate planning documents, wills, and trusts.

As a result of recent changes to the federal estate tax, as well as, many state estate taxes, the urgency to review your will is at an all-time high. As of this writing, 19 states, plus the District of Columbia, still have state estate taxes, leaving 31 states that don’t. Eight states are ushering in changes in 2015, such as lessening the death tax bite by increasing the amount exempt from the tax or indexing the exemption amount for inflation.

In 2012, the federal estate tax exemption of $5 million per person (indexed for inflation) was made permanent. For 2015, the federal estate tax exemption will be $5.43 million per person, up from $5.34 million per person in 2014. A 40% estate tax rate is applied to any excess over the exemption amount. By contrast, states with estate taxes typically exempt far less per estate from their tax. A state, such as New York, imposes a top estate tax rate of 16% on estates in excess of $2,062,500 (increasing over time to be equal to the federal estate tax exemption). As in the federal system, bequests to a spouse are estate tax free.

Since many wills and revocable trusts have bequests that are tied to the federal or state estate tax exemption amount, it is important to review these documents to make sure that they maximize the tax benefits available while also benefiting your family in the manner you desired and planned for. It is possible that a well- prepared plan drafted several years ago may result in a state estate tax being due upon the death of the first spouse, even though this was never the intended or planned result. This issue, if it exists, can be avoided by proper planning now.

For example, a New York couple executed their wills in 2008 when the Federal estate tax exemption was only $2,000,000. The wills provide that upon the first spouse’s death, that spouse’s estate tax exemption will be held in a trust for the surviving spouse in a commonly used Credit Shelter Trust. The New York estate tax that would have been due if a spouse died in 2008 would have been $99,600. Under the same plan, if the first spouse instead dies in 2014, there could be a New York estate tax due of approximately $431,000 if the entire current federal exemption amount went to the Credit Shelter Trust. This result is exacerbated when one considers that a surviving spouse may be able to avoid this tax altogether with proper planning or by moving to a state where there is no estate tax.

We urge our clients to contact us so that we may review your current estate planning documents and ascertain what changes may be needed, given the substantial changes in both federal and state estate tax law over the past several years.