The federal estate tax can absorb a lot of money that would have otherwise gone to people that you love. There are those who do not empathize, saying that everyone must pay his or her fair share of taxes. But is the estate tax fair?
People who are exposed to the estate tax pay taxes throughout their lives, so it could be argued that they have indeed already paid their share and perhaps more than their fair share. Why should another tax be imposed upon the event of someone’s death?
The family of former New York Mayor Edward Koch is learning about the profound impact that the estate tax can have right around now. Koch did not have a wife or children, but he did have a sister.
He left his sister and her husband something, but the lion’s share went to his sister’s children. The estate is estimated to be valued at approximately $10.5 million.
The maximum rate of the federal estate tax is 40% this year, and the exclusion is $5.25 million. Given this exclusion a considerable portion of the Koch estate is subject to taxation.
Since Ed Koch was a resident of the state of New York the taxation extends beyond the federal level. There is a state level estate tax in the state of New York, and that exclusion is just $1 million; the maximum rate is 16%.
Experts have suggested that Koch may have been able to preserve more of his wealth for the benefit of his family members if he had taken certain additional steps. This underscores the value of specialized estate planning assistance when you are making preparations for the future as a relatively high net worth individual.