Explaining New York Estate Taxes
For many people, one of the most disagreeable elements of handling an elderly loved one’s affairs is the thought of dealing with estate taxes, particularly in dealing with inheritance. While New York does not have an inheritance tax, it does have estate taxes, levied upon a person’s estate once they have passed away. It is very easy for the average person to get confused about exactly which taxes are owed and how much, which can make a difficult time even worse.
The estate of a deceased New Yorker is required to come up with both federal and estate taxes – which are taxes on the estate itself, rather than an inheritance tax, which is a tax on the beneficiaries of an estate. New York does not have an inheritance tax, but the federal and state estate tax systems are set up very differently, particularly in terms of exemption amounts. While many estates will not have to pay any tax, wealthier New Yorkers in places like Westchester County need to know the amounts.
The federal exemption from gift and estate taxes, as of 2023, is roughly $12 million per estate. What this means is that if a person dies with less than that amount, their estate does not have to pay gift or estate taxes on any of it. The New York exclusion amount for 2023 is approximately $6.6 million per individual (roughly half – though the federal exemption is set to go down to around $7 million as of 2026).
Beware The Estate Tax “Cliff”
With regard to state estate tax, one crucial fact to be aware of is known as the ‘estate tax cliff’ in New York law. When the value of a New York estate is greater than 105 percent of the estate tax exemption (so, in 2023, approximately $6.6 million), the entire estate is subject to tax, with no exemption allowed. For those whose estates lie right on the cusp of this number, discovering this ‘cliff’ can be a nasty surprise.
It is, however, possible to plan one’s estate to minimize the total amount of taxable assets. The most common way to do this is by creating a trust, which is a legal entity putting your assets into its name. This strategy can both remove assets from the taxable estate and potentially remove them from the probate estate. In New York, the probate process, by which a person’s estate is legally put in order, can take months or even years, so every asset that can avoid probate can get to beneficiaries more quickly.
Call A Pleasantville or Mahopac Estate Planning Attorney
When helping to manage an elderly loved one’s affairs, estate planning is critical, but the potential tax burden is often overlooked. A knowledgeable Westchester County estate planning attorney from Meyer & Spencer, P.A. can help answer your questions and protect your loved one’s estate. Call our office today to schedule a consultation.