Everyone has heard the line about taxes and death being the only things you can truly count on. Estate taxes apply to both. When someone passes away, the estate may be taxed before the beneficiaries receive the assets.
Though we will explain why your estate may or may not be subject to estate taxes, you should first understand that they differ from inheritance taxes. With an inheritance tax, the person who is set to receive the inherited money has to pay a tax. Inheritance taxes vary from state to state, and New York does not have one.
Then why bother discussing it? Because the tax is determined according to where the person passed away. New Jersey, for instance, has an inheritance tax. If someone passes away in New Jersey and you receive an inheritance while living in New York, you will have a tax assessed on your inheritance.
Estate Taxes (State)
You must have specific information and details to know if someone’s estate will be subject to estate tax. There are both state and federal estate taxes—and not all states have them. New York, however, does implement an estate tax.
The next question pertains to how much the estate is worth. States set their own exemption limits. For example, imagine if your estate was valued at $4 million. If you lived in Oregon, you would have to pay estate taxes to the state because their threshold is set at $1 million. On the other hand, New York’s amount is $5.74 million—therefore, a NY resident would not owe state taxes on a $4 million estate.
Estate Taxes (Federal)
The threshold for federal estate tax is relatively high. For an individual, the threshold for federal estate taxes is $11.7 million. If the value of your estate (cash, property, assets, etc.) falls under $11.7 million, then you will not be subject to federal tax.
If it does exceed that amount, then there are many ways in which you can limit how much your estate will be taxed. It is essential to consult with an experienced estate planning attorney to ensure that you don’t expose yourself to any additional risks before finding ways to limit your tax liability.
Law Office of Alexander Sherwood Keenan, PLLC
Numerous factors go into crafting the estate plan that fits your needs. When you sit down to discuss your estate plan with us, tax implications will be one of many factors that determine how it gets created. It is important to note that the laws that apply to estate planning—to include tax thresholds—do change over time.
Allow the Law Office of Alexander Sherwood Keenan to build the right estate plan for you and your family. To schedule your consultation, contact us today.