Estate taxes affect less than 1% of United States residents. While many people accumulate meaningful wealth during their lifetime, few amass truly significant fortunes. Yet, through sheer luck or shrewd investments, your estate could face taxation in the future.
If you live in New York, your estate may have to pay both federal and state taxes. To determine if it will, you will need to familiarize yourself with the applicable exemptions.
Federal estate taxes
Most estates, under federal law, are exempt from taxation. Your estate will avoid paying federal taxes so long as its value does not exceed $11.7 million. If you are married, this doubles to $23.4 million.
State estate taxes
New York is one of 12 states — plus the District of Columbia — that levies taxes on high-worth estates. The state currently taxes estates valued at more than $5.93 million. Yet, New York is unique in that it taxes the entirety of an estate if its value exceeds the state’s exemption by over 5%. In other states, and under federal law, taxes apply only to the part of the estate above the exemption, rather than its entirety.
You may want to consider strategies to minimize your estate’s tax bill if it exceeds the federal or New York state exemption. One way to accomplish this is to make gifts during your lifetime. Keep in mind that gifts can be taxed, too, once they exceed $15,000 per individual. Married couples can make gifts of up to $30,000 per individual without facing tax consequences.
Protecting your estate’s value is crucial, regardless of whether it will end up paying taxes. To preserve your legacy, you may want to seek the assistance of an estate planning attorney.