When you die, you want as much of your property as possible to pass on to the people you love. You likely have strong feelings about which loved ones should receive certain assets from your estate.
Creating an estate plan gives you control over the distribution of your assets after your death. Many people solely focus on naming beneficiaries for specific assets, but they should also consider preserving and protecting those assets.
Some individuals may need to protect their estate from claims by Medicaid or creditors. Others who have enough assets not to worry about such claims may instead need to worry about estate taxes. Both New York state and the federal government assess a tax on the total value of someone’s estate. Planning ahead is one of the surest ways to minimize how much of your legacy goes to Uncle Sam instead of your family.
What size of estate is vulnerable to taxation?
Not every estate will have to pay taxes. Only estates worth millions of dollars are subject to either federal or state estate taxes. You can exempt a certain amount of your estate’s value from taxation.
In New York, the Basic Exclusion Amount is currently $5,930,000. For those with even larger estates, federal estate taxes could also apply. Federal estate tax applies to estates worth $11,700,000 or more.
Both the federal and New York State estate taxes are graduated or progressive taxes. The overall tax rate that applies to the estate increases as the amount by which the estate’s value exceeds the exemption cut-off increases.
How do you plan for estate taxes?
Estate taxes generally only apply to assets held in your own name. Changing the way that you hold ownership of your biggest assets can help you reduce the overall value of your estate and the potential for taxation.
Moving assets into a trust and making strategic, tax-free gifts to family members are among the more popular tax mitigation strategies used by those with large estates. Real estate, businesses and investment portfolios may all be assets that require careful estate tax planning. Thinking ahead about the possible taxes you may have to pay will maximize the impact that your legacy has on your loved ones.