Q: Will my family have to pay taxes on my estate when I die?
A: The answer is “maybe.” At the outset it is important to know that the New York State exemption in 2024 is $6,940,000. The federal exemption for 2024 is $13,610,000. Therefore, if your estate is under these amounts, then there is no tax due.
First, any amounts to spouses or charities are tax free. Any amount under the above thresholds is also tax free. Nevertheless, for estates over the exemption amounts, either the New York or federal, additional planning is necessary. The balance of this article is for estates that exceed these threshold amounts.
But before we consider those taxes, let’s be clear about what comprises your taxable estate. All assets that you own at your death are counted towards your taxable estate, including IRA’s, annuities, bank accounts, real estate, life insurance owned by you or for which you have the power to change the beneficiary.
In New York, estates valued below this threshold amount ($6.94 million) will not incur any tax. For any estate valued at more than 5% over the threshold amount, ($7.287 million) the entire estate is taxed and there is no exemption available.
To illustrate: For decedents dying in 2024, consider an estate valued at $6.0 million. This is under the threshold amount and no tax is due. However, for an estate valued at $7.3 million, the estate tax rises sharply, to wit: the taxable estate is $678,000. This is commonly known as the “cliff.”
In an instance where the decedent dies and the estate is over the threshold, we often use a provision in the Will or Trust to reduce the taxable estate with gifts to charities.
Another technique is to make a large gift more than 3 years prior to death. Since New York State does not have a gift tax, only an estate tax, this works quite well. A lifetime gift that reduces the taxable estate below the threshold amount will result in no New York estate tax at death as long as the giver of the gift lives for three years after the gift is made. Otherwise, the gift will come back into the estate for the purposes of calculating the estate tax.
This same technique would not work for federal estate tax purposes, because any lifetime gift over the annual gift amount does reduce the lifetime applicable credit. This year the applicable credit amount is $13.61 million. This amount is indexed for inflation and will increase again in 2025. However, in 2026 the credit amount will be reduced as the law that created it will “sunset”. Most experts believe the federal exemption will be approximately $6.5-$7.0 million as of January 1, 2026. For clients with estates over that amount, it is necessary to plan early and reduce their taxable estates before the federal applicable credit is reduced. This is usually done with sophisticated trust planning which moves assets “over the tax fence” and uses the credit before they lose it.
Nancy Burner, Esq. is the Founding Partner of Burner Prudenti Law, P.C. focusing her practice areas on Estate Planning and Trusts and Estates. Burner Prudenti Law, P.C. serves clients from New York City to the east end of Long Island with offices located in East Setauket, Westhampton Beach, Manhattan and East Hampton.