Taxes are often a concern throughout someone’s life, especially if they have achieved professional success. The more resources and income someone enjoys, the more tax obligations they usually have. Taxes do not simply end when someone dies.
In fact, there are unique taxes that may apply to someone’s estate after their passing. Those taxes could significantly reduce what beneficiaries receive from someone’s estate. Often, people can reduce the tax liabilities of their estates with advance planning.
What types of taxes do people have to consider when drafting a New York estate plan?
State and federal estate taxes
Both New York authorities and the federal government may assess taxes against an estate. In New York, both state and federal estate taxes may apply. New York estate taxes apply to estates worth more than $6.94million as of 2024. The tax is progressive, meaning it increases with the value of someone’s estate. The top tax rate currently is 16%. Federal estate taxes might also apply. The threshold for federal estate taxes in 2024 is $13.61 million. The federal estate tax is also progressive with a top tax rate of 40%.
Income taxes
It is common for people to sell some of their assets. Testators may recognize, for example, that their family members may not want their home or any of their personal property. If the sale of estate resources generates more than $600 in income, it may be necessary for the personal representative to file an income tax return and save funds to pay estate income taxes. There could also be outstanding income tax obligations for the decedent that their estate may need to cover after the representative files their final tax return.
Capital gains taxes
Technically, capital gains taxes are the responsibility of beneficiaries. If someone receives valuable property from an estate and sells that property, they might owe taxes on the increase in value. Capital gains taxes can significantly reduce the financial benefit that loved ones derive from inheriting and selling certain resources.
Testators can prevent the inappropriate sale of assets by using a trust or might otherwise create a more structured estate plan as a means of limiting an estate’s tax obligations and the tax responsibilities that fall to their beneficiaries. For these and many other reasons, planning for taxes may help someone maximize the positive impact their estate has on their loved ones.
