Estate Tax Updates for 2021


 The heirs of New Yorkers passing away in 2021 with large estates may have taxes to pay, depending on the value of the decedent’s estate.

You should be aware that one’s estate could be subject to both Federal as well as State estate taxes.  At the Federal level, the amount excluded from federal estate taxes is $11.7 million dollars.  This amount is set to be reduced to $5 million per person in 2026.  Additionally, President Biden proposes further reduction to the 2009 level of $3.5 million per person.  Basically, this means for individuals with estates in excess of the exclusion amount will leave behind “taxable” estates.  Estate planning for these high values can be done to reduce the size of the taxable estate and mitigate the estate tax consequences. 

There are currently 17 states that impose their own estate or inheritance taxes.  Additionally, states that currently have no estate or inheritance taxes could always decide to impose such taxes, and thereby increase state revenue.  

In New York, if a New York resident passes away between January 1, 2021 and December 31, 2021, the exclusion amount per individual is $5,930,000.00.  Spouses in New York can leave any amount tax free to the surviving spouse.  When the second spouse passes, if the estate of the surviving spouse is in excess of the exclusion amount, the estate would be taxed. 

For individuals passing in 2021, with estates valued between $5,930,000.00 and $6,504,587.00, the portion of the estate in excess of the exemption amount will be taxed at rates of more than 100%, depending on the excess amount.  The result of the larger estates leaving less to heirs after the NYS estate tax is known as the “cliff.” 

Examples: -John is not married, dies in 2021 leaving estate worth $5,930,000.00 there is no tax due.  The estate is below the federal exclusion amount of $11,700,000.00 and the New York exclusion amount of $5,930,000.00. 

-John is not married, dies in 2021 leaving an estate worth $6,000,000.00; the value of the estate is $70,000.00 in excess of the exclusion amount, at a tax rate of 245%, taxes due $171,840.00, leaving $5,828,160 to heirs. 

-John is not married, dies in 2021 leaving an estate worth $6,050,000.00; the value of the estate is $120,000.00 above the exemption, resulting in a tax rate of 237%, $284,720.00 taxes due from heirs.  The amount remaining after taxes is $5,765,280.00. 

Furthermore, if the net estate value is more than 105% of the exemption amount ($6,504,587.00 is 105% of $5,930,000.00) the exemption is no longer available to reduce the tax, and the total value of the net estate will be taxed. 

It is possible to reduce one’s taxable estate with estate planning.  This type of planning can be done with life insurance, with trusts for married couples, as well as with planning for gifts to qualifying charities.  It is also possible to establish plans for lifetime gifts to reduce the taxable estate.  This type of planning is complicated and very specific to the individual’s circumstances considering the type of assets comprising the estate (real estate, IRA assets, non-IRA assets), as well as personal goals. 

Planning to mitigate for larger estates should be established and reviewed at regular intervals, to consider changes in the estate and inheritance tax levels, changes in the value of the estate, and changes in one’s individual goals. Estate planning to mitigate taxes should always be undertaken with the involvement of an estate planning attorney, an accountant, and financial advisor.  Sometimes a simple plan can result in big savings by reducing or even eliminating estate taxes. 

The information in this article is not intended to be specific legal advice.  The attorneys can be reached at 1-718-945-7777.  (Nancy Brady, RN, Esq., Partner, Brady & Bader LLP, Attorneys at Law)

 By Nancy J. Brady