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New York City Estate Tax Planning Attorney

Gifting assets to your loved ones, while well-intended, can carry significant potential tax consequences for family members and other recipients. At Holm & O’Hara LLP, our trusts and estates attorneys advise clients on how to best ensure beneficiaries receive the gift you intend to leave them, rather than a surprise tax burden. Working closely with our estate planning clients, we assemble and implement a tailored plan to minimize the potential impact of estate and gift taxes.

Understanding Estate Tax

Estate tax is a levy imposed on the transfer of the assets of a deceased person, whether such transfer is pursuant to the terms of the decedent’s will according to state intestacy laws (if the person dies without a valid will), or through a trust. The taxable estate is determined by ascertaining the value of all the decedent’s assets and then factoring in allowable deductions such as pre-existing debt and estate administration expenses.

Federal Estate Tax Laws

The federal government imposes an estate tax on the transfer of the taxable estate, with varying rates based on the estate’s value. A critical component of estate planning with regards to federal taxes is understanding the federal estate tax exemption amount. This is the threshold amount under which an estate is not subject to federal taxes. This exemption amount is subject to change and is adjusted annually for inflation.

New York Estate Tax Laws

New York State imposes its own set of estate tax laws, separate from federal regulations. Understanding state estate tax laws is essential for residents and those owning property in New York. If the value of an estate’s assets is above the exemption amount in effect at the time of someone’s passing, New York’s estate tax applies to the value of the entire estate, not just the amount above the state-specific exclusion amount. Without proper planning, this can result in a large tax bill.

Differentiating Between Estate Tax and Inheritance Tax

Although frequently conflated, there are fundamental distinctions between estate tax and inheritance tax. Estate tax is assessed on the estate for the total value of the deceased’s estate before assets are distributed to beneficiaries. This tax is calculated based on the net value of the estate, including real estate, personal property, and other assets after accounting for debts and liabilities.

In contrast, inheritance tax is imposed directly on the beneficiaries who receive assets from an estate. Inheritance tax is not levied in New York State or by the federal government but may apply if the decedent lived in one of the states with inheritance tax (such as New Jersey ). Unlike estate tax, inheritance tax varies depending on the beneficiary’s relation to the deceased and the value of the inherited assets.

Estate Tax Exemptions

Estate tax exemptions, as mentioned above, play a crucial role in estate planning at both the federal and state levels. These exemptions protect a portion of an estate’s value from taxation by offering various mechanisms for individuals to strategically reduce the taxable value of their estates.

Gifts

One common strategy is the use of gifts. Under federal law, as of 2024, individuals can gift up to $18,000 per person per year without incurring tax liability. Additionally, estate and gift tax can be avoided by utilizing a portion of the individual’s lifetime exclusion amount. Beyond direct cash gifts, there are other options for assisting a loved one without incurring gift tax liability.

Charitable Giving

Donations to charity are typically excluded from a taxable estate. These donations can be made either during an individual’s lifetime, through provisions in their will, or by establishing a charitable trust.

Trusts

Various types of trusts are instrumental in estate planning. Trusts can be used to reduce the estate’s taxable value and facilitate the transfer of property to beneficiaries without going through probate. Trusts can be tailored to suit different estate planning goals and family structures, providing flexibility and tax efficiency.

Debts and Estate Administration Expenses

Debts owed by the decedent at death and certain expenses incurred by the estate, such as funeral costs and attorney and accountant fees, may be deductible from the estate’s value, thereby reducing its taxable amount.

Spousal Exemptions

Assets bequeathed to a surviving spouse are generally exempt from estate tax at both the federal and state levels. This unlimited marital deduction allows for the transfer of any amount of assets to a surviving spouse free of estate tax.

However, there are differences in how unused estate tax exemptions are handled between spouses under federal and New York (and other state) laws. Federally, a surviving spouse can inherit any unused portion of their deceased spouse’s estate tax exemption. This portability allows the surviving spouse to use the combined exemption of both spouses, potentially doubling the amount shielded from federal estate tax.

Conversely, New York State law does not permit the portability of the unused exemption between spouses. To navigate this, estate planning in New York often involves setting up a bypass trust or credit [martial] shelter trust. This type of trust can hold property equal in value to the unused portion of the New York exclusion amount and exempt that property from New York estate taxation upon the surviving spouse’s death.

Why Work with an NYC Trusts and Estates Attorney?

Working with an experienced New York City trusts and estates attorney ensures that your estate plan maximizes tax efficiency and complies with federal and state laws. Our attorneys can assist in structuring estate plans to take advantage of available exemptions and deductions, preparing and filing estate tax returns, and providing asset protection strategies.

Consult Our Experienced Estate Tax Planning Attorneys

Our seasoned estate planning lawyers create tailored estate plans that address the unique needs of each individual or family. We guide clients through every step of the estate planning process, from drafting basic estate planning documents to strategizing tax efficient mechanisms for managing complex estates.

For guidance and peace of mind regarding your estate tax planning in NYC, contact an attorney at Holm & O’Hara LLP for a free consultation.

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