November 18, 2019
In early November, the Internal Revenue Service released Revenue Procedure 2019-44 providing the annual inflation adjustments for 2020 including, but not limited to, the following:
- Annual Exclusion for Gifts. For calendar year 2020, the gift tax annual exclusion remains at $15,000 per person. The gift tax annual exclusion for gifts to a non-citizen spouse will increase from $155,000 to $157,000.
- Federal Estate, Gift and Generation-Skipping Transfer Tax Exemption Amount. For an estate of a decedent dying in calendar year 2020, the applicable exemption amount will increase from $11,400,000 to $11,580,000. The federal gift and generation-skipping transfer tax exemptions will also increase from $11,400,000 to $11,580,000.
New York residents (and nonresidents with any real or tangible personal property located in New York State) should keep in mind that: (1) New York continues to impose its separate state estate tax (with a “Basic Exclusion Amount” of $5,740,000 for dates of death on or after January 1, 2019, and before January 1, 2020 and which is expected to increase due to inflation as of January 1, 2020) and (2) unlike the federal estate tax exemption, which can be “ported” (transferred) for use by a surviving spouse to the extent not fully utilized by a decedent, the New York state estate tax exemption is not “portable” (use it or lose it). Further, New York’s state estate tax is sometimes called a “cliff” because estates exceeding the exemption amount by as little as 5% lose the benefit of the exemption and are taxed on the full value of the estate.
In light of the New York state estate tax, clients may consider gifting assets to save on anticipated estate taxes. While New York does not impose a state gift tax, taxable gifts get “clawed back” into a decedent’s estate if they are made within 3 years of death. Therefore, a client can gift the federal estate tax exemption amount and, if he or she survives 3 years, effectively shield a larger amount from New York estate tax.
With the 2020 election looming, we can expect that there will be another push for meaningful estate tax reform, with serious presidential candidates already outlining their plans for reform.