The estate tax looms large for families who are in possession of considerable financial resources. On the federal level this death levy carries a maximum rate of 40% at the present time, and the amount of the exclusion is $5.25 million.
The case of the recently departed Ed Koch sheds light on just how severe this asset erosion can be. He died at the beginning of February in possession of around $10.5 million in assets according to reports.
Everyone in all 50 states must contend with the federal estate tax, but in New York and a number of other states there is also a state level estate tax. Koch lived and died in New York City, so his estate was taxable on the state level.
The New York state estate tax exclusion is much lower than the federal exclusion. Only the first $1 million may pass to your heirs in the state of New York before the estate tax will be applied. It carries a 16% top rate.
It is estimated that the total amount of estate tax liability that the heirs to the Edward Koch estate will be contending with is around $2.55 million.
Koch did one rather shrewd thing when he was planning his estate. His closest living family member was his sister. However, he left most of his assets to her sons directly. If he would have made his sister his primary heir estate taxes would have been levied, and then they would have been levied again when his sister bequeathed the money to her children.
By leaving most of his money to his nephews a very costly round of taxation was avoided.