As you get deeper and deeper into the estate planning process in New York, you begin to recognize opportunities to settle your pending liabilities and avoid any unnecessary expenses against your estate (thus preserving even more assets for your beneficiaries). Yet one potential expense hangs over your estate that may seem to be impossible to avoid: taxes.
Both the New York state and federal governments levy estate taxes. Yet is this something you truly need to worry about? If so, is there anything that you might be able to do to limit your estate tax liability?
State and federal estate tax exemption
Both the local and national governments offer estate tax exemptions. According to the New York State Department of Taxation and Finance, the local estate tax exemption for 2020 is $5.85 million. Per the Internal Revenue Service, the exemption amount at the national level is $11.58 million (that amount increases to $11.7 million in 2021). What this means is that if the total taxable value of your estate comes in under that exemption amount, it will not be subject to tax.
Estate tax portability
The federal government also offers the benefit of estate tax portability. This allows people to share tax benefits. In the case of estate taxes, one can claim their deceased spouse’s unused exemption amount. This opens the door for you and your spouse to (through careful planning) effectively double the federal amount for one of you to $23.16 million.
To do this, you would need to plan to leave your entire estate to your spouse (the unlimited marital deduction allows such a transfer free of taxes). This preserves your entire estate tax exemption. Your spouse would then need to file an estate tax return within nine months of your death electing portability.