New York Estate Tax Explained: How to Protect Your Heirs
Reasonable minds can disagree about where the dividing line lies between prosperity and financial hardship. Some people would draw the line at whether you get an income tax refund or whether you owe money to the IRS after you honestly enter your income, tax credits, and tax deductions into the mathematical formula for calculating income tax obligations. Others would say that you are financially disadvantaged if you must budget so tightly that the difference between the sticker price of an item and how much it costs once you add in the sales tax amount, whereas you are financially privileged if you complain about the property taxes you must pay, as this indicates that you own valuable property. By this logic, worrying about estate taxes is a first world problem, but your heirs who would have inherited money from you if the IRS had not taken it probably will not see it that way. If your property is so valuable that your estate might owe estate tax during New York probate, contact a Bronx estate planning lawyer.
How Much Estate Tax Will You Have to Pay?
Not everyone must pay estate taxes in New York. During probate, all estates must file a final tax return for the decedent, and this may involve paying income taxes on the income the decedent received during his or her last year of life. Even if the value of the estate is small, the personal representative must also give creditors a chance to seek the repayment of debts, and if they do, then the estate must pay to settle the debts. Conversely, only estates with a value above $7.16 million must pay estate taxes. The percentage that the personal representative must pay varies according to the value of the estate. Likewise, the exemption threshold for paying estate taxes changes each year; it gets higher each year, because of inflation. In 2024, estates valued above $6.94 million must pay estate taxes, but in 2025, the tax applies to estates valued above $7.16 million.
How to Avoid Paying Estate Tax in New York
Even if you own more than $7.26 million worth of property, there are strategies you can use to avoid paying estate tax, such as the following:
- Reduce the value of your estate to less than $7.16 million. You can do this by transferring ownership of some of your assets to your heirs now or by establishing a trust and transferring property to it.
- Only be a little wealthy. If your estate is less than 105 percent of $7.16 million, you will only pay estate taxes on the amount that exceeds the $7.16 million. This means that, if your estate is valued at $7, 518,000, you will only pay estate taxes on the $358,000.
- If you only spend part of the year in New York, make the other state your legal domicile. Many retirees who spend half the year in New York and half the year in Florida establish Florida as their legal domicile. This way, their estate will go through probate in Florida, where there are no estate taxes.
Schedule a Confidential Consultation With a Bronx Estate Planning Attorney
An estate planning lawyer can help you revise your estate plan so you can pay as little estate tax as possible. Contact Cavallo & Cavallo in the Bronx, New York to set up a consultation.
Source:
smartasset.com/estate-planning/new-york-estate-tax