Understanding tax rules is critical when you begin the estate planning process. Depending on the value of your assets, your heirs may be required to pay estate taxes, particularly if you don’t take advantage of options that can reduce tax liability.
Understanding estate tax rules
If you leave behind more than $6.11 million, your estate will likely need to pay a New York state estate tax, which is different from the federal estate tax. Understanding the rules for this estate tax is important as it differs from the estate taxes imposed in other states. For those areas and the federal estate tax, if an estate is large enough to be subject to the estate tax, only the amount over the exemption is taxed. For example, if $2 million is the exemption limit and you’re dealing with a $3 million taxable estate, then $1 million would be subject to the estate tax.
Determining estate taxes for New York residents
In New York, if the amount of your taxable estate equals more than 5 percent, or $305,500, of the exclusion amount when you pass away, your estate will not receive an exclusion. For example, an estate valued over $6,415,500 would be worth more than the exclusion amount allows.
Specific deductions can help lower the value of an estate
When working on an estate plan, it can help to look for deductions that can lower the value of your estate. No estate taxes will be due if deductions can be used to lower the estate value below the $6.11 million limit. These deductions can include the following:
- Charitable deductions
- Marital deductions
- Administration expenses and debts
Leaving gifts to qualified charitable organizations, property left to a surviving spouse, attorneys fees and funeral costs can all be deducted from the gross estate.
Becoming familiar with estate tax rules can be highly beneficial. Knowing the limits on which estate taxes are paid is a must if you’re looking for deductions to lower or eliminate the tax requirement.