Estate Tax Update February 2015

In this recurring piece, I’d like to key you into recent tax news that can affect or guide your estate planning. In this edition, we’ll cover estate tax legislation affecting State tax laws in 2014 and beyond. Specifically, we’ll cover the inheritance and/or estate taxes in New York, Pennsylvania and New Jersey.

As mentioned in our previous update for 2015, the Federal estate tax exemption is $5.43 million dollars per individual. Any additional dollar is subject to a 40% tax rate. Compared to the Federal tax, States with estate or inheritance taxes have lower exemption amount, but tax at a lower rate. For example in New York, the current estate tax is 16% for every dollar over $2 million. An estate worth $5 million would be subject to no federal estate tax, but would owe the State $480,000. This is why experienced estate attorneys plan with the Federal and State taxes in mind.

New York Estate Tax

New York is becoming increasingly competitive. The current estate tax exemption is about $2 million, at a maximum rate of 16%. Over the next 5 years this amount will steadily increase to match the Federal exemption. Here is a breakdown of what the New York estate tax will look like over the next few years:

Now – 3/31/2015: $2,062,500 Exemption
4/2015 –3/31/2016: Exemption increases to $3,125,000
4/2016 – 3/31/2017: Exemption increases to $4,187,500
4/2017 – 12/2018: Exemption increases to $5,250,000
1/2019: Match Federal exemption, projected at $5.9 million

Pennsylvania Inheritance Tax

First, it should be noted that Tom Corbett signed recent changes in tax law and are subject to change under the Wolf Administration especially given Wolf’s message that tax increases are on the way. Pennsylvania currently has an inheritance tax regime based on the beneficiary’s relationship to the deceased and amount inherited, up to a 15% maximum rate. In 2013, a new family owned business exemption became law. The law exempts certain family owned businesses under $5,000,000 in book value from the standard inheritance tax. This exemption does not benefit everyone, but it does create a valuable planning opportunity for people with family businesses.

New Jersey Estate and Inheritance Tax

New Jersey has one of the country’s highest ‘death’ tax rates. People often call New Jersey the worst place to die. For a Republican Governor with White House ambitions, this is not ideal. New Jersey imposes both an inheritance and estate tax. Few other states still use this method and the arithmetic is case specific and complex.

At its core, New Jersey’s current estate exemption is $675,000 with a top marginal rate of 16%. Further, New Jersey has an inheritance tax with maximum rates of 11-16% and exemptions ranging from $500-$25,000, depending on the beneficiaries relationship to the deceased. Governor Christie is attempting to lower both the facets of New Jersey’s death tax. Bills are currently being debated so that New Jersey remains competitive with neighboring New York and Maryland.

Conclusion

Keeping an eye on changes in State tax law is critical to minimizing estate and inheritance taxes that may reduce your estate.

If you need assistance with probate or with developing your Estate Plan, please call one of our Probate Lawyers or Estate Planning Attorneys for a free consultation. We have Estate Planning Attorneys in New Jersey, Pennsylvania, New York, and Florida.

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