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Careful planning helps you avoid gift and estate taxes

On Behalf of | Apr 9, 2023 | Firm News

If you’ve started looking into estate planning, you likely already know that New York is among the states that have its own estate tax. That means that if your estate is worth a significant amount of money, you could be looking at it facing federal as well as state estate taxes.

As of 2023, estates up to $12.92 million are exempted from the federal estate tax. The limit for New York’s estate tax is $6.58 million. How much your estate is above that $6.58 million mark determines how much of the estate’s value is subject to state taxes.

Estate taxes can take a big chunk out of the wealth you’ve worked hard to acquire and/or manage effectively. Fortunately, there are ways to minimize how much of your estate will go to state and federal taxes so that you can maximize what you leave to your heirs and other beneficiaries.

What you need to know about gifting assets during your life

A common strategy for keeping the value of an estate below the taxable limit is to give assets to family and other loved ones rather than wait and leave them via your will or trusts. You can give money, jewelry, real estate and other assets. 

It’s wise, however, to plan your giving. There is a lifetime federal gift tax exemption of $12.92, but only the annual amounts given to any individual over $17,000 count towards that lifetime exemption.

New York doesn’t have a gift tax. It does, however, what’s often referred to as a “clawback” or “lookback” rule. It’s intended to keep people from giving away too much to anyone or a few people to help them avoid losing out on estate taxes. The way the clawback rule works is that if someone is alive three years after a gift of their assets, the value of that gift (if it’s worth more than $17,000) is considered to be returned to their estate where it can be subject to New York estate taxes.

You can see how, with careful planning, you can pass along your assets to your loved ones while avoiding gift and estate taxes. There are numerous other smart estate planning strategies that you can and should begin while you’re still alive and well.