Currently, death tax exemptions are at an all-time high. This means that many smaller estates are no longer subject to federal estate tax, and families are able to pass more of their assets and wealth to their heirs. However, this doesn’t mean New York residents should forgo tax planning when putting their affairs in order. The laws surrounding federal estate taxes are always fluctuating.
Tax Planning Is Vital to Protecting a New York Estate
Even if your estate is not large enough to owe federal estate tax, you could still owe a significant amount of taxes to the state of New York upon your death. Early estate planning can help your assets avoid probate and prevent you from losing a large portion of your holdings to the government.
Here are a few things you should know about paying taxes on your estate:
- Federal tax exemption. The federal Tax Cut and Jobs Act of 2017 raised the U.S. federal estate tax exemption amount to $11.7 million per individual in 2021 or $23.4 million per married couple.
- Federal tax rate. The federal estate tax rate is currently 40%, but only the amount above the exemption amount is subject to estate tax. For example, if the exemption amount is $11.7M and the taxable estate is $14.8M, then only the excess $3.1M would be subject to federal estate tax.
- NY tax exemption. The New York estate tax exemption amount increases every year for inflation. In 2020, the basic exclusion amount was $5.85M. It stands at $5.93M in 2021. If the amount of the federal gross estate and the amount of any eligible gifts exceeds the exemption amount at the date of death, the executor of the estate must file a New York State estate tax return.
- NY State tax rate. The New York estate tax rate is far lower than the federal estate tax rate, starting at 5% and going up to a maximum of 16%. However, the way the taxes are imposed is also significantly different from federal law. If an estate goes over the exemption by under 5%, only the excess amount is taxed. On the other hand, if an estate exceeds the exemption amount by more than 5%, the entire estate is subject to taxation. This is commonly referred to as “falling off the estate tax cliff,” and can cause the loss of tens of thousands of dollars when estates pass the exemption threshold
- Spousal exemption. Under the marital exclusion, any property left to a surviving spouse is exempt from both federal and NY estate tax. However, there’s another difference in the state and federal exclusion. If the federal estate tax exclusion amount is not met for one spouse, the amount left unused can be transferred to the other spouse. This isn’t true for the New York estate exclusion, which is non-portable and may not be transferred and used later. By not taking advantage of the maximum exclusion amount, beneficiaries could face unintended New York estate taxes.
- Non-residents who own property in New York. Any real property or tangible personal property in New York State owned by a non-resident is subject to NY estate tax laws—even if the non-resident’s other assets are not taxed. It will take the help of a local attorney to mitigate estate tax on New York properties held by out-of-state owners.
How Our Estate Planning Attorneys Can Help
There are many planning techniques that can help mitigate or avoid taxes upon your passing, but they can only be implemented during your lifetime. Once you are gone, there’s very little your heirs can do to preserve your wealth. If you are approaching or expect to surpass the New York tax exemption cliff, you should consider speaking to our experienced New York estate planning lawyers as soon as possible.
The measures we recommend vary depending on your specific goals and circumstances. For example, some gifts are excluded from estate taxes, such as gifts made when you lived outside of New York or large donations to charity. We could also examine whether life insurance proceeds or businesses may be held in trusts—avoiding taxation as well as probate fees upon your passing.
No matter what your goals are, the dedicated legal team at Landskind & Ricaforte Law Group can help make them a reality. Contact us today through our online form to learn how we can be of assistance.