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The estate tax exemption in 2016

People in New York who are preparing an estate plan may wonder how to structure that plan to avoid estate tax. In many cases, doing so is not necessary. With the estate tax exemption set to rise to $5.45 million in 2016, many people's estates will fall under the maximum.

However, this is not the case for everyone. People might first wonder how much estate tax they will pay. Although there are different brackets for estate tax, what actually happens is that everyone ends up paying 40 percent on the amount that is above the estate tax. This is because of the way that the tax credit structured.

It is possible to avoid estate tax altogether if enough of the estate is given away while the owner is still alive. Gifts in the amount of up to $14,000 can be given to as many people as desired. A couple can give away $28,000 per person. Given to several different people each year over several years, this can substantially reduce the value of an estate.

While people in New York are also subject to state estate taxes, it is not as high as the federal tax. However, state laws should be kept in mind while making an estate plan. For this reason and because of the complexity of estate planning, people may wish to work with an attorney to develop the plan. Tax laws may change over time, and what might have been an appropriate strategy in earlier years may no longer work. People may need to periodically review wills, trusts, beneficiaries and documents such as their power of attorney to make sure that they have remained up to date as their families change. An attorney can also help ensure that documents are correctly prepared and less vulnerable to challenges.

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