Death taxes can be a factor for you if you are in a particularly strong financial position. There is a federal estate tax that everyone around the country must contend with, and there are some states that also impose state-level estate taxes. We practice law in the state of New York, and there is a state-level estate tax in our state.
There is an unlimited marital deduction that allows you to transfer unlimited assets to your spouse free of taxation, as long as your spouse is an American citizen. Transfers to others are potentially taxable, but there is a federal estate tax credit or exclusion. This is the amount that you can transfer before the estate tax would be applied.
During the current calendar year, the federal estate tax exclusion is $5.43 million.
On the state level, there is a lower exclusion at the present time. It will be increased each year until it meets the amount of the federal exclusion, but the New York exclusion currently stands at $3.125 million. As you can see when you compare these figures, it would be possible to face state-level estate tax exposure even if you are exempt on the federal level.
Estate Tax Efficiency Strategies
The existence of these death taxes is the bad news, but the good news is that there are strategies that can be implemented to mitigate your exposure.
Irrevocable trusts of various kinds are often used by people who are exposed to estate taxes. For example, there is a type of trust called a generation-skipping trust. Your grandchildren rather than your children would be the beneficiaries of this type of trust, but your children could benefit from assets that have been conveyed into the trust.
Ultimately, two generations could enjoy the benefits, but there would be just one round of taxation when the assets are being transferred to your grandchildren after the death of your children.
When you consider the value of real estate in our area of New York, the value of your house alone can be a significant factor when you are evaluating your level of estate tax exposure. You could potentially use a qualified personal residence trust to transfer the home at a tax discount.
There are also charitable trusts that can be used to gain estate tax efficiency under some circumstances.
These are a few of the different types of trusts that can be used for estate tax efficiency purposes, but there are others. Plus, trusts are not the only possibility when you are implementing a tax efficiency plan.
Contact Our Firm
If you would like to discuss taxation or any other estate planning matter with a licensed professional, send us a message through this page to request a free consultation: Smithtown NY Estate Planning Attorneys.