Middle class families had to be concerned with federal taxes in the past but not so much anymore.
The Rome Sentinel recently addressed federal estate taxes from an historical perspective and what its impact may be today in the article “2019 update: Should you be concerned about the estate tax?” One of the main issues, is that if you need to worry about the federal taxes, you are most likely in a very good financial situation.
For starters, there are many loopholes and nuances in the tax laws. Therefore, every situation is different. Your estate planning attorney will be able to review your individual situation and work with the laws of your state to make sure that your estate plan works for your family and minimizes your estate tax liability.
The estate tax concept is based on laws from past centuries, when the goal was to limit the amount of property that individuals could pass from one generation to the next. The estate tax is now the government’s way of saying you had too many assets, or assets that could not be fully valued or taxed, except upon your death. After death, the net worth of your estate is calculated by valuing your assets minus any liabilities.
Assets are counted as anything of value. However, they include: cash, insurance policies, stocks, bonds, real estate, annuities, brokerage accounts, business interests, and today, digital assets. They are brought to present market value to create the “gross estate.” Liabilities are counted as debts, mortgages, assets, funeral and estate expenses, and any assets lawfully passing to a surviving spouse. The liabilities are deducted from the assets to get to the “net estate” value.
Federal limits to the estate tax deduction were doubled, and today very few estates in the US are subject to the federal estate tax. Here’s a comparison: in 2000, the federal estate tax exemption was $675,00 and an estimated 52,000 estates had to pay estate taxes. The top 10% of income earners paid almost 90% of the tax, with more than a quarter of that paid by the wealthiest 0.1%.
When the new Tax Cut and Jobs Act became effective, the exclusion for federal estate tax increased from $5.49 million per person to $11.18 million per person. In 2019, there has been a further increase, to $11.4 million per person. That remains in effect until 2025.
Many states impose their own estate taxes. In New York State, the Basic Exclusion Amount for New York State Tax for estates for people who died on or after Jan. 1, 2019, and before Jan. 1, 2020, has increased from $5.49 million per person to $5.74 million per person. These amounts will increase in 2020.
However, even without the federal estate tax, people still need estate plans to protect themselves and their families because a will ensures that your assets are distributed to the people you want to receive your assets. An estate plan includes a Power of Attorney and Health Care Power of Attorney among the protections.
An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances.
Reference: Rome Sentinel (Jan. 22, 2019) “2019 update: Should you be concerned about the estate tax?”