Taxes are one of the many financial considerations that people need to learn about when planning an estate in New York. Those who fail to consider taxes when planning their estates may end up having the government lay claim to a sizable portion of their estates.
There are several different kinds of taxes that could diminish how much someone’s estate is worth after they die. Particularly large estates containing valuable real property, financial accounts or businesses could be subject to estate taxes. There may also be income taxes due from the decedent or from their estate. Estate sales that generate more than $600 in profit trigger income tax responsibilities.
There are also gift taxes that can apply when someone makes large gifts to other people, like their children. Gift taxes typically apply to transfers made while someone is still alive, not as part of their estate. Nevertheless, gift taxes might ultimately influence estate planning in specific ways overall.
Gift taxes limit strategic gifting
One of the ways that testators hoping to avoid estate taxes minimize their obligations to the government is through gifting assets or money to people they care about well they are still alive. Each year, as of 2023, the testator can gift up to $17,000 to each individual beneficiary they have selected without triggering any tax obligations. They can transfer up to that maximum amount to as many beneficiaries as they wish. However, the slow trickle of gifts can have implications for estate taxes.
Prior years of gifts count toward the estate’s value
The process of determining whether someone’s estate owes estate taxes or not involves calculating the full value of the estate. That value will include gifts and transfers to others completed in the three years prior to someone’s death. Therefore, an estate plan will need to factor in the possibility that thousands of dollars of gifts may end up increasing the estate’s value and possibly putting it at risk of a major tax burden.
Learning about gift tax exemptions and other financial obligations that can affect estates may benefit those at risk of incurring estate taxes and hoping to maximize what they pass to their loved ones when they die.