The ultimate goal of your estate planning efforts may be to preserve as much of your assets as possible by limiting your liabilities. Ensuring the settlement of your debts and planning ahead for distribution that qualifies for available credits against taxes help assure that most of what you have to leave to your beneficiaries passes on to them. However, it takes consideration of all options at the time of planning your estate to maximize preservation of assets.

Both local and federal estate tax codes offer potential relief from paying estate taxes by using exclusions that exist in the tax laws.

Understanding estate tax exclusions

New York is one of the few states that imposes a state estate tax. However, the state provides a credit amount, by which an estate which is below a fixed total value is not subject to estate tax.  According to the New York State Department of Taxation and Finance, the state’s estate tax exclusion is currently $5.85 million, which increases annually with inflation. If the total taxable value of your estate is below that amount, it does not have to pay estate tax to New York State.  The federal government provides an estate tax exemption as well.  The amount for 2020 is $11.58 million which also increases annually, but that level is set to remain in effect only until 2025 when it is scheduled to revert to prior levels.   Both state and federal exclusions may be affected by changes in tax legislation in years to come.

Estate tax portability 

At the federal level, there is another way for you to extend your estate tax exemption even further. The law allows your spouse to claim the unused portion of your estate tax exemption and combine it with their own through estate tax portability.

To extend the benefit for both state and federal taxes, you may use the unlimited marital deduction, if that is effective for your estate, or create other devices in your estate planning documents to preserve the opportunity to engage in after-death planning which can result in tax-free estates for both spouses.

You can find more information on estate planning strategies throughout our site.