New York residents may not realize how the state’s estate tax could affect their legacy. Unlike most states, New York imposes its own estate tax, which can significantly reduce inheritances.
This tax burden matters especially for homeowners in New York, where property values often run high. A home valued at $1 million, combined with other assets, could easily push an estate over the tax exemption threshold.
Understanding New York’s estate tax
To effectively plan their estates, New York residents need to grasp the specifics of the state’s estate tax system. New York’s estate tax differs from the federal estate tax and kicks in at a lower threshold. The 2024 New York estate tax exemption is $ 6.94 million. Estates valued above this amount face tax rates from 3.06% to 16%.
New York also uses a ‘cliff’ system wherein the state can tax an estate exceeding the exemption by more than 5% in its entirety. For example, if an estate is valued at $7.3 million, the entire amount becomes taxable, not just the excess.
Strategies to minimize estate tax impact
Residents can use several strategies to reduce the impact of the estate tax:
- Gifting: Annual gifts up to $18,000 per person are exempt from gift tax.
- Charitable donations: Leaving money to qualified charities can reduce the taxable estate.
- Trusts: Trusts like Qualified Personal Residence Trusts can remove assets from the taxable estate.
- Life insurance: Properly structured policies can provide tax-free benefits to heirs.
When properly executed, these approaches can substantially lower an estate’s tax burden and help retain more assets for heirs.
Seeking legal guidance
Estate planning can be complex with state-specific taxes. Engaging a local estate planning attorney is advisable to help develop a customized strategy. They can guide individuals through various estate planning tools, such as:
- Irrevocable life insurance trusts
- Family limited partnerships
- Business succession planning
Regular review of estate plans is crucial as laws and circumstances change. It’s also important to include digital assets like online accounts and cryptocurrencies in estate plans. Smart and detailed planning can help individuals leave more to their loved ones and create a lasting legacy.
For more information, residents can visit the New York State Department of Taxation and Finance website. Early estate planning helps protect assets and secure a family’s future.