One of the most satisfying parts of having an estate plan is knowing you can care for your family after you pass away. With proper tax planning, you can mitigate the estate taxes and make sure your beneficiaries get the most from your estate.
According to the New York State Department of Taxation and Finance, your beneficiaries must pay estate taxes as well as file state and federal forms within nine months of your death.
New York estate tax cliff
The U.S. federal estate tax exemption amount increased as part of the 2017 Tax Cut and Jobs Act. The means more families may avoid paying the federal estate tax. However, New York has estate tax requirements that are much lower than the federal amount.
The state’s estate tax cliff law is also unique. If the estate exceeds the exemption amount in most states, your beneficiaries only pay the estate taxes on the difference. In New York, if your estate exceeds the exemption amount, the entire estate is subject to the estate tax. As a result, families are often unprepared.
Tax planning techniques
You can help your family avoid a big tax bill with strategic planning. Although you must consider federal gift tax reporting and laws, lifetime gifting may be an option. It moves gifts out of state and federal tax considerations.
If you have significant life insurance policies, properly transferring life insurance into trusts can remove them as an asset from the overall estate. You may establish an exemption trust equal to the estate tax exemption, ensuring that the trust contents leave your estate. It is subject to the gift tax but may ensure the money goes to your spouse and does not get taxed when they pass away.
Charitable giving, moving assets to non-New York tangible property and becoming a resident of another state can break domicile ties. The laws relating to estate taxes are often complex. Understanding the best planning techniques for your estate can help minimize taxes and provide a legacy for your family.