STAYING CLEAR OF THE CLIFF
As it turns out, Robert and Becky’s state estate taxes would be significant. The New York estate tax threshold is $5.85 million in 2020 and will increase with inflation each year thereafter. For those with estates worth less than $5.85 million who die in 2020, no New York estate taxes are paid. New York also has a state estate tax “cliff” that must be considered. For estates that exceed the exemption amount by less than 5%, taxes are only owed on the amount over the threshold. Beyond the cliff, estates with a value of more than 105% of the annual exemption amount are then taxed on the entire estate value.
If we assume Robert and Becky’s existing $10 million net worth increases at a conservative rate, in 20 years the estate’s projected net worth would be an estimated $20 million.
The following table below considers two different sets of scenarios of what could happen if Robert were to die unexpectedly today, in 2020:
- Scenario #1: Assumes an “all-to-spouse” will without portability of the federal exemption at the first death. Portability requires the timely filing of a federal estate tax return at the first spouse’s death (IRS Form 706).
- Scenario #2: Assumes federal portability is elected at the death of the first spouse, and an amount equal to the New York exemption amount is transferred at the first death to a “B” trust.