Your estate plan needs to address not just your assets but also your obligations. It is a common oversight for people creating wills and similar testamentary documents to focus solely on what they want to give to others and not consider outside factors that will diminish what they can leave for the people they love.
You may already realize that your debts pass to your estate when you die. However, if you have complex and high-value assets to your name, you will likely be able to cover those debts with your assets after your death without diminishing what your loved ones receive at all. You likely won’t find yourself dependent on Medicaid benefits if you require nursing home care either.
Unfortunately, there is another liability that could substantially diminish what you pass to your children and other loved ones after your death.
Estate taxes are an expensive concern
Both the state of New York and the federal government assess estate taxes. They will look at not just the assets left in your name at the time of your death but also the last three years of gifts and transfers to determine if your estate is worth enough to make estate taxes apply.
In New York, an estate worth more than the Basic Exclusion Amount (BEA) is subject to taxes. Until December 31, 2022, the BEA is $6,110,000. The federal exemption threshold for estate taxes is slightly less than twice the New York BEA. You can have up to $12,060,000 worth of property in your own name without triggering estate taxes at the federal level.
The more you go over that threshold, the higher the tax rate you may have to pay. The top federal tax rate is 40% of the estate’s value in addition to whatever you pay to the state of New York.
Planning for taxes will minimize your losses
If you have a multi-million dollar estate, you may not be able to diminish its value enough to avoid all estate taxes, but you can still drastically limit how much you have to pay for the privilege of transferring your wealth to the next generation. Changing how you own property, such as moving it into a trust, will diminish your estate’s value. You can also use gifts to pass property directly to the intended recipients while you are still alive.
Often, large estates will require professional help to appropriately analyze and resolve estate tax risks. Even if you already have a comprehensive estate plan including a will and a trust, you may want to expand your existing plan to address secondary concerns like estate taxes. Focusing not just on bequests but also on liabilities like estate taxes will help you create the most effective estate plan as someone with complex personal property in New York.