If you have accrued an amount of wealth that is part of your estate, taxes may have to be taken from it when it gets passed down to your beneficiaries. This is known as the estate tax, otherwise nicknamed ‘the death tax.’. However, there are some ways to avoid paying taxes on portions of your estate. One of the simplest ways to do so is to designate some of your money as gifts, such as to your children or to an institution. The federal government and your state government may have differing rules over how large your estate has to be in order to owe taxes on it. Below we go over both federal and state estate tax limits and how they may affect you.
Federal Estate Tax Limits
According to federal law in 2020, an estate that is worth less than $11.8 million does not get taxed. That means that if your estate does exceed that amount, you want to lower your total estate worth if you want to avoid the estate tax. One way to do so is by giving gifts. A person can give up to $15,000 per person to any amount of people as gifts and that money is exempt from getting taxed. So if you are going to pass money on to your children, give it to them as gifts (up to $15K each) to help avoid the estate tax.
New York State Estate Tax Limits
In New York, the estate tax limit is much lower than the federal limit. If your estate is over $5,850,000, it will be taxed in increments depending on how much over the limit it is when you pass away. That means that if you live in New York, the federal tax limit doesn’t help you. You have to worry about a much lower limit than potentially in other states.
Hire a Financial Planner
The important thing to do when worrying about estate tax is hiring a financial planner who is experienced in this area. A good financial planner will help you find the best ways to save on taxes and maximize the amount of money you pass on to your loved ones. At DeSantis, Kiefer, Shall, & Sarcone, our experts help families manage their estates to preserve their money and handle any estate tax issues. We’re here to help you get your estate into the best shape to be passed on to your children.