By now, we have all heard about the Fiscal Cliff Legislation passed in the late hours of January 1, 2013 permanently raising the Federal Unified Credit to $10,500,000.00 for married couples. In other words, any individual can now pass $5,250,000.00 to their beneficiaries free of the Federal Estate Tax. Married couples may now pass $10,500,000.00without owing a dime to the Federal Government in Federal Estate Tax. As a New York estate lawyer this is very good news for my clients, the significance of which should not be lost on any of us. Had these rates rolled back to their 2001 rates as scheduled, a married couple passing $2 million to their heirs would be Federally taxed up to 55%. But that did not happen; rather Congress passed what has endearingly become known as the Fiscal Cliff Tax Legislation.

Now that I can pass $10,500,000.00 free of Federal Estate Tax, am I out of the woods?

Probably not and here is why. Every year national moving companies report the migrating patterns of Americans in all 50 states. In 2012, Atlas moving systems helped over 58% of their customers move out of New Jersey and New York. So why are people moving out of New Jersey and New York at such alarming rates? At first glance, you might think it is the property taxes, New Jersey and New York share the highest property taxes in the union, but you would be wrong. Aside from sharing the highest property taxes in the country, both New Jersey and New York also share the highest state estate tax rates. In fact, the New Jersey State Estate Tax is so bad, it has one state estate tax paid by the estate and a second state inheritance tax paid by the beneficiary. To make matters even worse, beneficiaries begin paying estate taxes on any and all inheritance over and above $25,000.00 at the alarmingly high rate of 16%. New Jersey hands down gets the dubious honor of having the worst state estate tax structure in the country. However as a New York estate lawyer I can tell you the New York Estate Tax is not much better. In 2011, Smart Money Magazine wrote an article citing both New York and New Jersey as the worst places to die for a reason.

$10,500,000.00 is an awful lot of Federally tax-exempt inheritance to leave behind. Do not be fooled. While most estate clients are in no danger of exceeding this amount any time soon, they may easily exceed the NYS unified credit of $1,000,000.00 making their estate liable for considerable NYS estate taxation. New York estate lawyers and clients alike overlook this hidden New York State Estate Tax lurking in the background of estates.

The New York State Estate Tax attaches to any and all inheritance in estates exceeding$1,000,000.00. If an individual’s estate exceeds $1,000,000.00 in NYS it will be subject to the NYS estate tax sliding scale of between 5-16%. As such, an inheritance for an unmarried decedent of $1,500,000.00 in NYS will generate approximately $100,000.00 in NYS estate tax liability. As the amount of inheritance increases the NYS Tax gets progressively worse. While a married couple can pass $10.5 million free of any and all estate tax at the Federal level, their estates would still be subject to a notable $1,600,000.00 NYS tax bill. That is a lot of money for anyone.

As you can see, the NYS estate tax can be a serious burden on any and all estate inheritance exceeding the $1,000,000.00 threshold. Despite Fiscal Cliff Legislation passed by Congress making the $10.5 million Federal tax exemption permanent, estate planning is still necessary at the state level. As a New York estate lawyer, I recognize the importance of developing ongoing estate strategies taking both NYS and Federal Estate Tax into consideration. Through more advanced estate-planning strategies such as Family Limited Partnerships, Irrevocable Trusts and Inter Vivos Gifting, we can remove assets from your estate thereby lowering your total estate tax liability beforehand. Although the NYS estate tax begins at 5%, it can be become quite onerous as it progresses upwards towards 16%. If you have an estate of $1,000,000.00 or more feel free to speak to one of our New York estate lawyers at the Law Offices of Jason W. Stern & Associates, (718) 261-2444 to discuss an effective estate strategy for you.

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