Estate Tax Planning in New York and for Dual State Residents
Since 1916, the federal government has imposed an estate tax on the value of an individual’s estate upon death. In the late 1970s, the federal government bolstered this system by linking the estate tax with a gift tax (a tax on gifts made by an individual during their lifetime) and a tax on generation-skipping transfers (GST) — a tax on transfers to recipients who are two or more generations younger than the donor. As a shock to some, many states, including New York, also impose an estate tax on top of the already burdensome federal tax.
In 2023, taxpayers subject to estate, gift, or GST taxes are generally taxed at the top rate of 40%. Due to a historically high exemption, which likely exempts a large portion of our clients’ estates, this tax only burdens those with an estate over $12.92 million ($25.84 million for married couples). However, those with an estate exceeding this exemption may find that a large portion of their estate is diverted to the federal government rather than their loved ones.
At Russo Law Group, P.C., our New York attorneys have assisted thousands of families in achieving their estate planning goals. Through years of service, our attorneys have acquired deep knowledge of all aspects of estate planning. Whether routine or sophisticated, our goal is to assist our clients in minimizing estate, gift, or GST taxes.
We assist our clients with efficiently structuring their New York estates using a variety of planning options, including:
- Wills and Revocable Trusts
- Irrevocable Life Insurance Trusts (ILITs)
- Grantor Retained Annuity Trusts (GRATs)
- Qualified Personal Residence Trusts (QPRTs)
- Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs)
- Sales of Assets to Grantor Trusts
The Current Tax Cuts and Jobs Act Impact on New Yorkers
In 2017, the largest tax law change since 1986 was signed, titled the Tax Cuts and Jobs Act (TCJA). With promises of simplified rules and index card-sized tax returns, this comprehensive tax reform resulted in broad changes to the tax laws in the country, including lowered rates and fewer deductions. These changes applied to entities of all shapes and sizes, including individuals, businesses, estates, nonprofits, etc.
Federal Estate and Gift Tax
Originally the Tax Cuts and Jobs Act (TCJA) didn’t repeal the federal gift and estate tax. However, this estate tax has greatly been reduced.
In 2018, the TCJA increased the federal estate, gift, and generation-skipping (GST) tax exemptions to $10 million per person, indexed for inflation. For tax year 2023, the federal estate tax exemption is $12.92 million for individuals and $25.84 million for married couples. As currently written, the federal exemption will revert to approximately $7 million beginning January 1, 2026.
Due to this generous federal exemption, most taxpayers will not have to pay a federal estate tax for estates of persons dying after December 31, 2017, and before January 1, 2026. However, for those individuals with New York estates valued in excess of the estate tax exemption, proper planning is crucial to proactively and effectively minimize potential estate tax liability in New York. For those with estates valued below the federal exemption amount in New York State, there are still many reasons to properly structure your estate, including:
- Creditor protection
- Controlling who and how your beneficiaries will inherit wealth
- Minimizing any state-level estate taxes
NYS Estate Tax Planning for Individuals
In addition to the Federal estate tax exemption increase, the New York State estate tax exemption adjusts for inflation as well. The New York State estate tax exemption amount in 2023 is $6,580,000.
You will “fall off the cliff” when your estate’s value exceeds $6,909,000 or 105% of the basic exclusion amount. Our tax planning attorneys work to ensure this won’t happen.
Income Tax Planning for Individuals in New York
Individual taxpayers in New York saw a reduction in their individual tax rates. However, benefits were offset or dulled by the loss or capping of certain deductions, including the mortgage interest deduction and state and local tax deductions (including property tax).
With new tax laws come new planning opportunities, especially with changing tax brackets. You don’t want to pay more in federal income tax than you have to. Strategies such as deferring or shifting income, converting a second home to a rental property, changing the entity status of a business, or prepaying property taxes may be effective ways to decrease federal income tax in New York.
We recommend that you consult with an experienced New York tax attorney to help you decide what choices are right for your specific situation.
Understanding Charitable Planning to Save Estate Taxes
At Russo Law Group, P.C., our skilled New York estate planning lawyers advise our clients on the most efficient way to structure their charitable giving. Using a variety of New York charitable planning techniques, we help our clients achieve their philanthropic goals while maximizing income tax deductions and reducing the size of their estates.
Charitable trusts, donor-advised funds (DAFs), and private foundations are just a few of the charitable planning strategies that offer valuable income tax and estate planning benefits. Whether it’s a gift of cash, stock, or appreciated property, our attorneys advise you on the best option for your charitable and financial goals.
Tax Planning for Businesses in New York
New York businesses, both corporations and pass-through entities, were also affected by the TCJA. Corporate tax rates were reduced to 21% by 2018. In 2023, pass-through entities (partnerships, S corporations, sole proprietorships) now receive a 20% deduction from the maximum rate of 37% for a 29.6% rate limited to the greater of 50% of wage income or 25% of wage income plus 2.5% of the cost of tangible depreciable property for qualifying businesses. This deduction is set to expire in 2025.
Russo Law Group, P.C. helps you and your loved ones handle Estate Planning, Elder Law, Special Needs Planning, New York Medicaid Planning, Trust & Estate, Guardianship, Small Business Planning, and Real Estate law. We welcome you to contact our Garden City, Lido Beach, or Islandia, New York, law offices to learn more about how we can help address your estate planning legal matters.
If you have questions or concerns about tax issues in Long Island and New York City communities, please don’t hesitate to contact the estate tax planning attorneys at Russo Law Group, P.C. While we have several office locations, we can also visit your home and offer virtual meetings for convenience.