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 estate planning beneficiaries). Yet one potential expense hangs over your estate that may seem to be impossible to avoid: taxes. Will you owe estate tax in New York?
Both the New York state and federal governments levy an estate tax. Yet, is this something you truly need to worry about? If so, is there anything you could 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 increased to $11.7 million in 2021).
This means that if the total taxable value of your estate comes in under that exemption amount, it will not be subject to estate tax.
Estate Tax Portability
The federal government also offers the benefit of estate tax portability. This allows people to share tax benefits. Regarding estate taxes, one can claim their deceased spouse’s unused exemption amount. This opens the door for you and your spouse to (through careful estate 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 must then file an estate tax return within nine months of your death, electing portability.