Dec 15, 2021 New York Estate Tax
Estate taxes in New York can present those who fail to plan thoroughly with a huge tax liability that can be avoided with a comprehensive estate plan. New York is one of only eleven states plus the District of Columbia that imposes an estate tax in addition to the federal estate tax. But New York is the only state that applies a tax on the entire estate and not just on the portion of the estate’s value that exceeds the amount of the estate tax exemption.
The law firm of Ely J. Rosenzveig and Associates has extensive experience creating estate plans that preserve the wealth that you accumulated through decades of effort for those whom you choose to benefit. Through the creation of appropriate legal instruments, the tax burden borne by your estate can be minimized instead of suffering from New York’s Estate Tax “Cliff.”
New York’s Estate Tax Cliff
The New York Estate Tax “Cliff” refers to the sudden increase in the tax imposed on someone’s New York estate when its value ‘goes over the cliff’ — i.e., exceeds the state’s Basic Exclusion Amount (“BEA”) for New York Estates.
In 2021, a decedent’s estate is exempt from New York estate tax if its value does not exceed the BEA of $5,930,000 (in 2022, the BEA is $6.11 million). When the value of a decedent’s estate exceeds 105% of the BEA, then New York taxes the entire estate’s value. In every other state with its own estate tax, only the portion of the estate above the exempt amount is taxed. The result of this unique tax policy is that a decedent’s estate taxes can be substantially higher than the amount of assets that exceeds the BEA exemption.
For example, an estate worth $5,930,000 would pay no estate tax because it is entirely within the amount exempted. If, instead, the estate was worth $6,226,501 ($1.00 more than 105% of the exemption), the estate would be over the tax exemption amount by $296,501. That would trigger a tax of $522,899 plus 12.8% on the amount above the exempt amount.
Estate $6,226,501 – Exemption $5,930,000 = Overage $296,501 x 12.8% = $37,952.13
Estate Tax = $522,899 + $37,942.13 = $560,841.13
The NYS estate tax rates are progressive, and range from 3.06% to 16%.
Assets Subject to Estate Tax in New York
Estate taxes are levied on property and assets which are owned by the decedent, and which are not subject to transfer to a named beneficiary by mere operation of law. Examples of such items include personal property, real estate the decedent owned by themselves or as a tenant-in-common, bank accounts held individually or without a right of survivorship designated, retirement accounts and insurance policies or annuities without named beneficiaries.
The federal estate tax exemption in 2022 is $12.06 million, high enough not to worry most Americans thinking about passing assets to the next generation of family. But, as we illustrated above, a much larger group of people may be at risk of losing wealth to the State of New York through its uniquely structured method of taxing the entirety of probate estates that exceed the BEA.
Estate and Tax Planning to Minimize New York Estate Taxes
Estate taxes are collected on the nonexempt value of property and assets that pass through the state’s probate process. Typically, the decedent will have executed a series of legal instruments specifying the way they want their assets to be distributed following their death. The same property that is taxed when it goes through probate can, with the proper planning, be passed to the desired beneficiaries with little to no tax liability.
Simple Steps to Minimize the New York Estate Taxes
Working with an attorney experienced in building estate plans and trusts, you can establish a sound plan to protect your family and intended beneficiaries by transferring assets to a trust that fits your individual circumstances. Your lawyer’s expertise in the various types of trusts available will allow you to choose how much control you retain over the assets during your life, how and by whom the assets are managed, and how, when, and under what conditions the assets will be distributed to your designated beneficiaries. Since assets in many trusts are no longer controlled by the grantor, they do not pass through probate or incur estate taxes when the grantor passes away.
Other still simple estate-tax-reducing measures include a host of gifting strategies, which we can assist you with.
Always consult with a professional estate law firm before deciding to take any action to change control or access to your current assets. The attorneys at Ely J. Rosenzveig and Associates are experienced and savvy estate and tax planning attorneys who are familiar with cutting edge estate and tax planning strategies, and know precisely what legal vehicles are most appropriate to transfer assets you wish to distribute while preserving their value to the greatest degree possible within the limits of the law.
But, do not wait. Unless protective measures are executed immediately, you and your intended beneficiaries may lose a large portion of your wealth to New York Estate Taxes unnecessarily.
New York’s Estate Tax Rates
The estate tax rates in New York are not the highest among the eleven states imposing their own such tax, but New York’s estate tax bite is significant. The maximum estate tax rate in New York is 16%, but other states with a 16% maximum estate tax apply the rate only to the estate’s value exceeding the state’s exemption level. Some states’ estate tax exemptions are lower than New York’s $5.93 million, but, as noted above, no other state taxes the entire estate when its value tops the exemption.
Ely J. Rosenzveig and Associates has extensive experience focusing its law practice on estates and trusts, tax law, elder law, and employment and discrimination law. The firm is proud that its founder earned a rating as AV Preeminent, the highest level of professional excellence, in Martindale-Hubbell’s peer review ratings drawn from evaluations by fellow attorneys and the judiciary.
Protect Your Assets from Unnecessary New York Estate Taxes: Call us today: +1 (914) 816-2900