According to the Tax Cut and Jobs Act, the federal tax exemption for 2022 is $12.06 million per person or $24.12 million for married couples. Any amount above that is subject to estate taxes that can be as high as 40%. In New York, the limit is much lower; any amount above $6,110,000 is subject to estate taxes. To ensure that your loved ones get more of their inheritance, here are some tips you could adopt to lessen the estate tax impact on your property.
Give gifts to your family while you are still alive
While you’re alive, you can give portions of your wealth to loved ones in the form of gifts. The IRS allows you to give up to $16,000 per child in a year without paying any gift tax, or $32,000 if you’re married and you file joint tax returns.
Make charitable donations
If you’re interested in giving back to charity, you should consider using a charitable trust. With this type of trust, you can put money and property into it and then allow the charity to use it however they see fit. The IRS will likely reduce your taxes when transferring your assets to your beneficiaries.
Set up an irrevocable life insurance trust
Death benefit proceeds are not taxable in New York; however, your beneficiaries will still need to pay taxes on any interest received on the insurance. To ensure that your loved ones pay the least amount of taxes possible, create an irrevocable life insurance trust. By doing this, you’ll be transferring ownership of your life insurance policy to the trust, meaning it’ll no longer be part of your estate, and the IRS won’t tax you.
Make sure your estate is valued correctly
In addition to using trusts, charitable giving and tax planning, you should ensure that your property is valued correctly. Overvaluing or undervaluing it could have significant tax implications.
There are many other strategies you could use to lessen your estate taxes implication; however, the key to any method is to start early. Keep researching different plans to find what would work best for your assets.