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Michael Rosenberg

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Armonk, NY 10504
Phone: (914) 683-0800
Fax: (914) 273-3285
mr@mrosenberglaw.com

Law Offices of Michael Rosenberg

Estate and Gift Tax
Changes through 2011

By Michael Rosenberg
Reprinted from "Perspectives" newsletter, updated March 2007

You probably know that in 2001, Congress passed major tax legislation that provides gradual reductions in estate and gift taxes over the following eight years. For example, the estate tax exclusion, which was $675,000 in 2001, increased to $1 million in 2002, jumped to $1.5 million in 2004, and again to $2 million in 2006. That means an individual can, with proper planning, pass along up to $2 million tax-free to his or her heirs ($4 million for a married couple) if they happen to die in 2007. See the chart below.

Proper planning is key. For example, you may need to re-title assets that you and your spouse own jointly. Also, your estate may be larger than you think: it includes life insurance owned by you as well as IRAs and 401(k)s.

New York Estate Tax Pitfall
The New York estate tax law limits the maximum exemption to $1 million. New York estates falling into the gap between the New York exemption and the $2 million federal exemption may be paying New York tax even though no federal tax is owed. The New York tax on a $2 million estate is approximately $100,000. There are strategies for avoiding the New York tax on the death of the first spouse. However, depending on the size of the surviving spouse’s estate, this may result in an even greater aggregate federal and New York estate tax on the second death than the New York estate tax payable on the first death. Thus, in many situations, it may make sense to pay the New York tax on the death of the first spouse.

Estate and Gift Tax Schedule

Year	Federal estate tax exemption	New York estate tax exemption	Top marginal estate & gift tax rates (federal)	Gift tax exemption (federal)
2004	$1.5 million	$1 million	48%	$1 million
2005	$1.5 million	$1 million	47%	$1 million
2006	$2 million	$1 million	46%	$1 million
2007	$2 million	$1 million	45%	$1 million
2008	$2 million	$1 million	45%	$1 million
2009	$3.5 million	$1 million	45%	$1 million
2010	N/A	$1 million	0% estate tax 35% gift tax	$1 million
2011+	$1 million	$1 million	55%	$1 million

Planning beyond 2007
Long-range estate planning can get tricky. Keep in mind that the estate tax exemption will gradually increase to $3.5 million by 2009, and the top tax rate will drop to zero in 2010. But unless Congress acts to change the law again, the exemption and tax rate will return to their $1 million and 55 percent, respectively, in 2011.

Regardless of what Congress does, you still need a Will and, in many cases, a credit shelter (bypass) trust. Please contact me if you would like to discuss estate planning strategies for your particular situation.

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