Estate Tax Exemptions for 2020

January 21, 2020 Austin F DuBois

Each year, the value of assets a person can pass to their family upon death without paying estate tax increases. This article summarizes the new exemption limits.

The Federal government and many states, including New York, levy a tax on the transfer of wealth–this is commonly referred to as the “estate tax”. When a person dies, any assets he or she owns or has sufficient connection to are included in his or her “estate”. If that estate is valued over a certain amount, it is subject to tax. The good news for most people is that these taxes only apply to significantly wealthy individuals.

In New York State, the “applicable exclusion amount” for 2020 is $5,850,000 per person. This means that any person dying with an estate up to this value isĀ not subject to any estate tax. The recent history of the New York State estate tax basic exclusion amount is:

Basic exclusion amount (BEA)

For dates of death the BEA is
on or after April 1, 2014, and before April 1, 2015 $2,062,500.
on or after April 1, 2015, and before April 1, 2016 $3,125,000.
on or after April 1, 2016, and before April 1, 2017 $4,187,500
on or after April 1, 2017, and before January 1, 2019 $5,250,000
on or after January 1, 2019 and before January 1, 2020 $5,740,000
on or after January 1, 2020 and before January 1, 2021 $5,850,000

Source: New York State Department of Taxation & Finance

The limit for the Federal government is now $11,580,000. The Federal limit’s recent history is:

  • $5,000,000 in 2011
  • $5,120,000 in 2012
  • $5,250,000 in 2013
  • $5,340,000 in 2014
  • $5,430,000 in 2015
  • $5,450,000 in 2016
  • $5,490,000 in 2017
  • $11,180,000 in 2018 (doubling as a result of the passage of the Tax Cuts and Jobs Act of 2017)
  • $11,400,000 in 2019

Source: Internal Revenue Service

With proper planning, a married couple is able to “double up” on these already high exemptions, making the effective exemptions for married couples $11,700,000 in New York State and $23,160,000 Federal. Both of these exemption limits now increase each year relative to inflation.

Most people in the Hudson Valley do not even come close to these thresholds, and therefore don’t need to worry about estate taxes. However, that does not mean that taxes are of no concern. The biggest tax that can now affect the middle class is the Capital Gains tax. Depending on factors such as income and amount of capital gains, the tax rate will be somewhere in the low- to high-twentysomething percent. It applies to any asset that has increased in value since its purchase. The most common example is a person’s primary residence, but this also applies to stock, other real estate and artwork, to name a few. When such an asset is sold capital gains tax applies to the sale price, less the initial purchase price and any capital investment–the technical way of arriving at its increase in value.

While homeowners do not typically need to worry about capital gains upon sale of their primary residence, due to an exemption of $250,000 per person ($500,000 per married couple), that exemption only applies to the homeowner. So, in a situation where mom & dad are no longer the homeowners–for example when they gift the house to their children to avoid nursing home or other long-term care costs, they are also saddling those children with the capital gains tax, unless the child(ren) live in the house. This also applies to gifts of any other asset that has increased in value.

So while it’s true that estate tax is no longer a concern for most families, and while it is hopefully true that most families are beginning to realize that long-term care costs are the real concern, it is important that we protect assets based on a thoroughly informed and considered plan, guided by an experienced Elder Law attorney.