A successful estate plan is able to merge numerous estate planning goals into one comprehensive plan. For many people, tax avoidance is one of those goals given that a substantial portion of the value of an estate can be lost to state and/or federal tax obligations in the absence of proper planning. With that in mind, the Long Island attorneys at Eghrari Wealth Training Firm offer some guidance on how to incorporate tax avoidance strategies into your New York estate plan.
Federal Gift and Estate Taxes
Every taxpayer’s estate is subject to federal gift and estate taxes which effectively represent a tax on the transfer of wealth. Both transfers made during your lifetime in the form of a qualifying gift and transfers made at the time of your death are potentially taxable at the rate of 40 percent, meaning that 40 percent of the value of your estate could be lost to Uncle Sam after you are gone. Moreover, any federal gift and estate taxes due must be paid before assets can be transferred to beneficiaries and/or heirs of the estate.
Fortunately, all estates may utilize the lifetime exemption when calculating federal gift and estate taxes. The lifetime exemption is akin to a deduction in that each taxpayer may deduct the current exemption amount from his/her estate’s value before calculating federal gift and estate taxes. The lifetime exemption was originally set at $5 million (to be adjusted annually for inflation) but was raised substantially in 2017 and is currently set at $12.92 million for 2023. As such, only estates valued at over $12.92 will owe federal gift and estate taxes. The lifetime exemption is set to drop back to $5 million (plus the inflation adjustment) in 2026.
New York State Gift and Estate Taxes
New York is also one of several states that imposes a state level gift and estate tax on the estate of New York residents, and even on some non-residents who own property in the state. New York uses a graduated tax rate, meaning that the rate at which an estate is taxed will depend on the overall value of the estate assets; however, the top tax rate is 16 percent, as of 2023.
New York uses a similar “exemption” that works much like its federal counterpart when calculating estate taxes. As of 2023, the New York “exemption” is $6.58; however, estates that exceed the exemption amount are treated much differently than they are by the federal government. The exemption starts phasing out at $6.58 million and by the time the value reaches $6,909.000 an estate no longer qualifies for an exemption. That means that if the estate exceeds $6,909,000 in value, the entire estate is subject to New York estate taxation.
Tax Avoidance Strategies for Your New York Estate Plan
It is always wise to plan as if your estate will be subject to gift and estate taxes because many of the most useful tax avoidance strategies require you to start implementing them years before your death. Three frequently used tax avoidance strategies that you may wish to include in your New York estate plan include:
- . Because estate taxes, both state and federal, are based on the value of your estate at the time of your death combined with qualifying gifts made during your lifetime, making strategically planned gifts during your lifetime that lowers the value of your estate when you die can be a powerful tool. An estate planning attorney can help you make gifts that will not be included when calculating your estate’s value at the time of your death.
- . The yearly exclusion allows each taxpayer to make gifts valued at up to $17,000 (for 2023) to an unlimited number of beneficiaries each year tax-free and without those gifts counting toward your lifetime exemption. Married couples can combine their exclusion and make combined gifts valued at up to $34,000.
- . An asset protection trust is an irrevocable trust that protects assets held by the trust because the irrevocable nature of the trust allows the law to view assets held in the trust as property of the trust. Therefore, those assets are out of the reach of creditors and other threats to your assets. Those assets are also not included when calculating the value of your estate after your death.
Do You Need Help with Tax Avoidance Strategies?
For more information, please join us for an upcoming FREE seminar. If you need assistance incorporating tax avoidance strategies into your New York estate plan, contact the Long Island estate planning attorneys at Eghrari Wealth Training Firm by calling us at 631-265-0599 to schedule your appointment.
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