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Do I Need to Worry About the Estate Tax?


Unless you own a substantial amount of assets–we are talking in the seven or eight figures–it is unlikely you will ever need to seriously worry about estate or inheritance taxes. It is still a good idea to understand what these taxes are and how they may affect you as a New York resident. Additionally, if you own assets in multiple states, you should consult with an estate planning lawyer who can help explain how different laws may affect your particular situation.

What Is the Estate Tax?

Let’s start with the basics. An estate tax is a tax imposed by the government on the transfer of property upon your death. The tax is assessed against your “gross estate,” which is essentially the fair market value of any assets you own on the day of your death. This includes tangible assets, such as real estate, as well as intangible property like stocks and bank accounts.

The United States Government imposes a federal estate tax. A handful of states, including New York, separately impose their own estate tax. The New York estate tax applies to a person’s federal gross estate plus any “includible gifts.”

What is an “includible gift”? Here we get into one of the less-understood aspects of estate taxes. It is not just a tax on the property you own at your death. It can also cover property that you gave away–or gifted–before your death. Under New York’s estate tax, any gift you made during the three years preceding your death must be included as part of your state gross estate, assuming it was not included in your federal gross estate.

There are several exceptions to the includible gift rule. For example, you do not have to include any gifts made when you were not a resident of New York. Let’s say Mary Smith moved to New York in 2017 and died in 2019. In 2016, while living in California, she made a large cash gift to one of her friends. Even though this is within the three-year window, it would not be an includible gift for purposes of New York’s estate tax.

Exemptions from the Estate Tax

Calculating the gross estate is just the first step in the process. The tax itself only applies to a non-exempt portion of the estate. And here is why most of us do not need to worry about actually owing estate tax after we die–the exemption amounts are quite generous. For a person who dies in New York during 2020, the basic exclusion amount is $5.85 million. In other words, if your gross estate is worth less than this amount, your estate will owe zero tax. (The federal estate tax exemption is even more generous, at $11.58 million in 2020).

But even if you never expect to have an estate large enough to exceed the basic exclusion, it is still a good idea to speak with a qualified Putnam County estate planning lawyer about other tax issues that may arise with respect to your future estate. Contact Meyer & Spencer, P.C., today to schedule a consultation.




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