Plan Ahead to Minimize Your Estate Tax Burden in New York
To the surprise of many, the end of 2010 came with another temporary approach to the ongoing issue of federal estate taxes. Under the compromise legislation passed at the end of last year, estates less than $5 million are exempt from federal estate taxes, while any amount in excess of $5 million is subject to a 35 percent tax.
However, with the all of the media attention devoted to federal estate taxes, it is easy to forget that state estate taxes are far more important for many families. New York imposes an estate tax on any estate over $1 million. Many people who will be completely exempt from federal estate taxes will be subject to substantial New York estate taxes.
While an individual estate valued at $2 million will have no federal tax liability, the same estate may pay nearly $100,000 to New York under current laws. Fortunately, through advanced planning it is possible to reduce the overall tax burden on your estate.
Crafting an appropriate estate plan requires a thorough understanding of an individual’s circumstances. However, as an example, consider a married couple with an estate valued at $2 million. If one spouse dies, leaving all of the assets to the other, that single spouse will have an estate valued at $2 million. Upon the death of the second spouse, the estate will be required to pay the aforementioned $100,000.
If, instead, both spouses establish trusts individually and place half of their shared assets in their respective trusts, these estate taxes can be bypassed entirely. By dividing their shared assets into two separate estates, each estate is only $1 million and therefore entirely exempt from New York estate taxes.
This is just one of the many strategies available to people in New York seeking to reduce estate taxes, but all of the possible strategies require advanced planning. Through proper planning, you can ensure that more of your assets are directed as you wish them to be and fewer of your assets are directed toward state coffers. Additionally, you can ensure that you are as prepared as possible for whatever Congress might decide to do with federal estate taxes in 2012, when the recently passed estate tax law is scheduled to sunset.
Now is the time to begin preparing. Speak with a knowledgeable estate planning lawyer who can guide you through the process, make sure you understand your options and ensure that your interests are protected.