Use It Or Lose It: Time is Running Out to Avoid the Federal Estate and Gift Tax – Part One

Stella King, Esq. is a resident of Tarrytown, New York, and an associate attorney at Enea, Scanlan & Sirignano, LLP, a White Plains-based law firm that concentrates its practice in elder law; wills, trusts, and estates; Medicaid planning and applications (home care and nursing home); guardianship proceedings for the disabled (contested and non-contested); and special needs planning for the disabled.

For the vast majority of New Yorkers, the federal estate and gift tax and the New York estate tax is not an issue. However, for affluent residents of the State of New York, it begs the question: Would you rather give millions of your hard-earned money to the government later, or for the benefit of your family now?

Back in 2018, the Tax Cuts and Jobs Act (TCJA), signed into law by President Trump, nearly doubled the federal estate and gift tax exemption amount from $5 million per person to $11 million per person, with annual increases for inflation. In the year 2024, the federal estate and gift tax exemption amount is $13.61 million per person—an increase from $12.92 million for 2023. In simpler terms, this means that during one’s lifetime and upon one’s death an individual can transfer up to $13.61 million worth of assets to others tax-free (and married couples can transfer up to $27.22 million tax-free). Yet, the TCJA was never made permanent: Unless extended, this law is scheduled to “sunset” on December 31, 2025, and on January 1, 2026, the exemption will drop down to approximately $7 million per person (as adjusted for inflation). The federal estate tax rate is currently 40%.

To well-off New Yorkers, the prospect of paying both a federal and a New York estate tax is harrowing. The New York estate tax exemption ($6.94 million per person for 2024) has an estate tax “cliff” if your estate is 5% greater than the exemption. Thus, if in 2024 you pass with an estate greater than approximately $7.28 million and have no surviving spouse, New York goes back to Dollar One of your estate and taxes you at an increasing rate to a high of 16%. Additionally, New York has a three-year “clawback” rule (with limited exceptions) where all gifts made within three years of your death are clawed back into your taxable estate.

Thus, without engaging in any estate tax planning, a New Yorker with an estate in excess of approximately $7.28 million could find themselves paying a combined federal and New York estate tax at the rate of 49.9%. Without a crystal ball, one can only hope for the best but prepare for the worst. In this context, that means making strategic decisions now to avoid, or at the very least reduce, potential federal estate and gift tax implications. In Part Two of this article, to be printed in the March 2024 issue, those strategic mechanisms will be reviewed.

Read more articles by Stella King:

Aging in Place: How Can I Pay for the Cost of a Home Care Aide?

Partner Content: Planning For Your Loved One with Special Needs

Partner Content: Protecting Your Home From the Cost of Long-Term Care

Partner Content: Why Do I Need A Revocable Living Trust?

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About the Author: Stella King