Federal Estate Tax: Inclusion of Lifetime Gifts

The answer to the question “Are gifts made during my lifetime includible in my estate for estate tax purposes?” depends on several factors.

Federal

For purposes of the Federal Estate Tax, yes, any taxable gifts you make during your lifetime are includible in your estate. However, this does not necessarily mean that those gifts will ultimately result in an estate tax liability.

In 2019, the basic Federal Estate and Gift Tax exclusion amount for an individual is $11,400,000. This means that any taxable gifts you make during your lifetime that exceeds the annual exclusion for gifts ($15,000 for 2019) will reduce the exclusion amount.

For example, if you die in 2019 owning assets that total $4,000,000 and you gifted $6,000,000 during your lifetime then the combined total of gifted assets and current assets (i.e., $10,000,000) will be under the $11,400,000 basic Federal Estate and Gift Tax exclusion and there will not be any federal tax liability owed.

You should speak with an estate administration attorney who is well versed with tax law to determine if it will be necessary or beneficial to file a Federal Estate Tax return (IRS Form 706), even if there is no tax liability owed.

New York State

There is no gift tax in New York State, however certain taxable gifts made by New York residents within three (3) years of death up through December 31, 2025 will be subject to a “clawback” provision of the New York Tax Law. This means that those taxable gifts will be included in the decedent’s taxable estate.

As of January 1, 2019, the New York estate tax exclusion is $5,740,000, which means that if you own assets worth less than $5,740,000 then there is no estate tax liability or a need to file a New York State Estate Tax return (NYS Form ET-706).

If you have made certain taxable gifts within three years of your death, then those gifts are considered part of the estate for estate tax purposes.

For example, if you die in 2019 owning assets that total $4,000,000 and you made taxable gifts of $6,000,000 in 2017, then you will have a taxable estate of $10,000,000 which will result in New York State Estate Tax liability.

It is important to speak with an experienced Estate Planning attorney who can advise on strategies to reduce and sometimes even eliminate estate tax liability before making significant gifts of your assets.