Estate planning in New York is a diverse, challenging, and delicate area of practice that you must take your time with because there are many factors at play when transferring property to your loved ones or a charitable organization. Among them, taxes are the main concern. Here’s what you need to know about taxes in estate planning.
Taxes and estate planning
The main reason New Yorkers undertake estate planning is to reduce the hefty tax consequences that come with transferring property to other people. For instance, federal estate taxes can reach up to 40% without even accounting for the state tax liability. This means that if you have $1 million over the estate tax exemption, the IRS will take $400,000 and leave $600,000 for your loved ones.
Minimizing estate tax burden
Trusts, charitable giving and tax planning can help minimize the estate tax burden. When you give out to charity, you will enjoy tax deductions that can ensure your loved ones get the most out of your property. To enjoy this benefit, you can donate some of your money or property during your lifetime.
Since there is an annual exclusion limit for gifting, you can give gifts to your loved ones yearly to reduce your taxable estate. And if you make payments directly to medical facilities or schools for your heirs, those funds won’t be subject to taxation.
Another effective way to reduce taxes is using irrevocable trusts. Irrevocable trusts are helpful because they remove all incidents of ownership and transfer them to the trust. If you have highly appreciated assets or investments, this may be the best way to go. Find one that fits your situation.
Tax laws frequently change in New York and also with the federal government. Always stay updated with the estate laws and keep your estate plan updated as time goes by. Remember, you can always change your plan if you feel like it doesn’t cover your needs and that of your loved ones.