As people in New York become more involved in the estate planning process, they tend to quickly realize that a number of opportunities exist for them to preserve assets for future generations. Most, however, seem to accept that they cannot avoid one expense: estate taxes.
This assumption may have a degree of merit; local residents face the potential of an estate tax liability coming from both the state and federal levels. Yet through proper estate planning, one might be able to limit that liability. Doing so requires an understanding of the New York and federal government estate tax exemptions.
New York’s estate tax statutes
As of 2022, the state sets an estate tax exemption of $6.11 million. Those estates whose total taxable value falls below that amount will not be subject to tax. Those that face taxes then encounter the potential of a tax cliff. The cliff provision kicks in at 105% of the estate’s total value. Prior to that cliff, only the portion of the estate exceeding the threshold amount is subject. Once above the cliff amount, the entire estate faces taxes.
Federal estate tax portability
According to the Internal Revenue Service, the federal estate tax exemption for 2022 is $12.06 million. Married couples might extend that amount even further through portability. This refers to the sharing of tax benefits between eligible parties. One can preserve their estate tax exemption by leaving their entire estate to their spouse (the unlimited marital deduction allows those assets to pass tax-free). Their spouse may then claim that unused exemption and combine it with their own by filing an estate tax return electing portability. This allows one to protect up to $24.12 million.