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By John M. Bigler In last months column, we discussed significant changes in the capital gains law under the Taxpayer Relief Act of 1997. Those changes will have a major effect on planning for seniors. This month we will concentrate on changes in the Estate and Gift Taxes both at the Federal level under the Taxpayer Relief Act and also changes that have taken place at the State level pursuant to a new bill signed by Governor Pataki.
Under the new Federal law, the Federal estate and gift tax exemption will gradually be increased from the present number of $600,000.00 to $1,000,000.00 in the year 2006. In 1998, the exemption will be increased to $625,000.00, in 1999, $650,000.00, in 2000, $675,000.00, in 2002, $700,000.00, in 2004, $850,000.00, in 2005, $950,000.00 and finally 2006, to $1,000,000.00. Also, effective for gifts made after August 5, 1997, if the gift is adequately disclosed on a gift tax return, the IRS can no longer go back and re-evaluate them for estate tax purposes after the three year statute of limitation expires. At the State level, the changes are even more dramatic. The new changes will place New York with the large majority of states that do not have either a gift or an estate tax. Under the new law, New York's available unified credit against the estate tax will be increased gradually until February 1, 2000, when the available New York unified credit will be equal to the available Federal tax credit for the payment on Estate death taxes. On February 1, 2000, the New York State estate tax will become what is commonly referred to as a "sop" tax because the amount of tax that is imposed is only equal to the amount that is necessary to "sop-up" the available Federal estate tax death credit. The amount of the federal estate tax paid, plus the state estate tax paid, will be equal to the amount of federal estate tax that would have been paid if there was no State estate tax. The State law will be gradually phased in. The current limitation on gifts of $115,000.00 will be raised to $300,000.00 as of January 1, 1999 and then, as noted, will be raised to the federal level on February 1, 2000. In regard to the state tax, the increase to $300,000.00 will apply to those individuals who die on or after October 1, 1998 and to the federal level for those individuals dying on or after February 1, 2000. Estate Tax Breathers Other changes of note include an extension of time to pay an estate tax. Under present law, 90 percent of the New York estate tax is due six months after death. Effective for individuals dying on or after August 7, 1997, the 90 percent will be due seven months after date of death. Additionally, at the present time, the estate tax return is required to be filed with the Surrogate's Court when there is probate of a will or administration of an estate. As of February 1, 2000, the New York State estate tax return will not have to filed with the Court unless specifically ordered. Another significant benefit will be that it will no longer be necessary to obtain a tax waiver from the State of New York to collect decedent's assets. In regard to elder law planning, clients that are considering gifting more than the $10,000.00 annual exclusion amount over the course of the next two years may want to reconsider those gifts. Obviously, for an individual who has immediate need for medical care, they will not have the luxury of delaying gifts. But, for that senior who is planning ahead and considering making gifts to avoid future medical expenses, it would probably make sense to delay the gift until at least 1999 so as to avoid paying a gift tax. For example, under the new law, a transfer of a home to an adult child who has lived in the home for at least two years and has cared for the senior during that time is an exempt transfer. The transfer of the home could be made to that child at any time without any period of ineligibility for Medicaid purposes. Therefore, there is no urgency to make the transfer. Even if the senior was admitted to a nursing home, they could still make that transfer and not have it result in period of ineligibility for Medicaid. Therefore, if a senior transferred a $200,000.00 home outright to a child today, there would be a New York State gift tax due for the value of that house over $125,000.00 ($115,000.00 lifetime exclusion plus a $10,000.00 annual exclusion). Rather than paying the gift tax on $75,000.00, that senior might simply delay the gift until January 1, 1999 and avoid paying any gift tax. Of course, consideration has to be given to whether or not the exemption will still apply at that time. For example, if the child is intending to move out of the house. It would also be advisable for seniors to review their estate planning with either their attorney or accountant. The wording of Wills, especially for spouses who have by-pass trusts should be reviewed to be certain that the language in the Will conforms to the new law. Reprinted with permission of the Suffolk Times © 1999 [ Contact Us ] [ Guestbook ] [ Email ]  The Law Offices of John M. Bigler, Attorney At Law 1421 Wantagh Avenue, Wantagh, New York 11793-2206 1-888-ELDER-LAW · 516-409-6565 · Fax: 516-409-6522 E-Mail: info@biglerlaw.com · Web Site: www.biglerlaw.com |
In New York, we have to be concerned with both State and Federal gift tax. At present, Federal gift tax allows a person to make a total of $600,000.00 in tax- free gifts in his/her lifetime or at the time of his/her death. Any amount over that is subject to a Federal gift tax between 18 percent and 55 percent. In New York, gifts during lifetime and at death can total $115,000.00 before a gift tax is due. In addition, there is a $250,000.00 New York estate tax exemption on death for the value of a principal New York residence. If a home is gifted during one's lifetime, the $250,000.00 exemption does not apply.