Avoiding New York estate taxes may require careful planning

On Behalf of | Oct 23, 2024 | Estate & Gift Taxes |

Many people don’t realize just how many accumulated assets they have until they develop their estate plan. Between real estate, retirement accounts, investments, etc. personal wealth can add up to millions of dollars.

That’s not counting inheritances, which may include part ownership of a family business, that someone is likely be receiving from their own parents over the upcoming years. This substantial transfer of assets over the upcoming decades has even been given a name: The Great Wealth Transfer.

These are just a few of the reasons why it’s important for New Yorkers to understand the importance of protecting their estate from New York estate taxes. They are more likely to devalue an estate than federal estate taxes are. New York is among the relatively few states with its own estate tax. It also has some laws that people have to maneuver as they take steps to avoid it.

Understanding the threshold and the “tax cliff”

This year, estates valued at $6.94 million or less (not including assets left to a spouse or non-profit organization) are exempt from the estate tax. This threshold typically increases each year. If an estate is over that threshold, but by no more than 5%, only the excess amount is taxed. If it’s over 5% above the threshold, the entire estate is taxed. That’s commonly known as the “tax cliff” because a small difference in asset value can mean a big tax increase. Going above the 5% (105% of the threshold level) is referred to as “falling off the cliff.”

How the “Santa Clause” can help

One way that people can avoid falling off the cliff is by using something referred to as the “Santa Clause.” That’s a provision in an estate plan designating that when someone passes away, if the value of their estate would send it “over the cliff,” the amount of assets needed to put it under the 5% will be donated to designated non-profits.

There are a number of ways to avoid having your estate hit unnecessarily with taxes after you’re gone, while still ensuring that your heirs and other beneficiaries get the assets you want to pass on to them. Having experienced legal guidance can help you make the best decisions for yourself and your family.