In New York, there are many people who have substantial assets that they want to pass along to loved ones after they are gone. This is why it is so important to move forward with comprehensive estate planning strategies. However, there are common missteps people might make because they are not fully aware of the law and the available options.

Estate taxes are a primary concern. While the basic exclusion amount where people can avoid paying an estate tax on what they have inherited is currently at $7.35 million, a testator still must be cognizant of pitfalls that could leave loved ones with an unexpected tax bill. This is when they should know about the New York estate tax “cliff” and how to avoid it.

Estate tax can be unexpected and costly

Under state law, if an estate goes beyond the excluded amount and reaches 105% of its value, then the entire value of the estate can be taxed. Currently, that means that if a person’s estate is worth $7.7 million or more, they will need to pay the estate tax. It can come to a significant amount.

There are, however, ways to avoid the estate tax “cliff.” Among the available options are lifetime gifting, a spousal trust, irrevocable trusts, or so-called “Santa Clauses” by having charitable bequests.

With lifetime gifting, the taxable estate can be reduced. New York does not have a gift tax. It does have a claw back if the gifts were given within three years of the person’s death. Spousal planning would include a bypass trust. After a spouse dies, their assets up to the relevant estate tax exemption would be put in a trust for the survivor to use as needed. The “Santa Clause” will gift the amount that goes beyond the exemption to charity. The tax would then be eliminated, and could be avoided.

Preparing for estate taxes and avoiding them

A critical part of estate planning is understanding the nuance and aspects that people frequently forget. That includes taking steps to make sure heirs will maximize what they retain without needing to worry about massive payouts in estate taxes. For help with considering the available options, it is important to have qualified assistance from experienced professionals who provide experienced representation and personal service.