5 Ways to Avoid Estate Taxes by Seth Schlessel, Estate Planning Attorney
Welcome to Schlessel Law, PLLC's YouTube channel! In today's video, we'll discuss crucial strategies for avoiding estate taxes and ensuring a smooth transfer of your assets to your loved ones. Estate planning is essential for protecting your wealth, and we’re here to guide you through it.
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The federal estate tax is a tax on your right to transfer property at your death. In 2022, the federal estate tax exemption is set at $12.06 million. If your estate's value falls below this threshold, you won’t owe federal estate taxes. However, estate tax laws vary by state, so it's important to understand how New York's regulations might impact you.
New York imposes an estate tax on estates valued above $6.11 million as of 2022. Unlike the federal tax, New York has an “estate cliff,” meaning if your estate exceeds the exemption limit by 105%, the entire estate becomes taxable. New York's estate tax rates range from 3.06% to 16%.
Gift Assets to Loved Ones: You can reduce your estate’s value by gifting assets. In New York, you can gift up to $16,000 per individual annually without incurring gift taxes. There’s no limit on the number of individuals you can gift to, allowing you to strategically reduce your taxable estate.
Donate to Charity: Using Charitable Lead Trusts (CLTs) or Charitable Remainder Trusts (CRTs), you can donate assets to tax-exempt charities, reducing your estate’s value and enjoying tax breaks. A CLT allows for a portion of your assets to go to charity, with the remainder going to your beneficiaries. A CRT allows you to receive income from the trust during your lifetime, with the remainder going to charity upon your passing.
Create an Irrevocable Living Trust: Including a life insurance policy in an irrevocable living trust can prevent the policy’s payout from being part of your taxable estate. This is a strategic move to ensure your beneficiaries receive the full benefit without estate tax deductions.
Set Up a Family Limited Partnership (FLP): An FLP helps protect your assets from creditors and manage investments while providing tax breaks on gift, income, and estate taxes. Typically, parents serve as general partners, managing the trust, while children or other beneficiaries are limited partners, receiving limited liability and tax benefits.
Establish a Qualified Personal Residence Trust (QPRT): By placing your home in a QPRT, you can transfer ownership without incurring estate taxes. You can continue living in your home for a specified period, after which ownership passes to your beneficiaries, freezing the property’s market value for tax purposes.
Consider using the Alternate Valuation Date if the value of your estate’s assets has decreased. This option, provided by the Tax Cuts and Jobs Act, allows the estate to be valued six months after the date of death, potentially reducing estate taxes. This must be elected by the estate’s executor and applies to the entire estate.
Navigating estate tax laws can be complex, but with careful planning, you can minimize tax liabilities and maximize the wealth passed on to your loved ones. At Schlessel Law, PLLC, we are committed to helping you create a comprehensive estate plan tailored to your needs. Contact us at (516) 574-9630 to schedule a consultation with Long Island estate planning attorney Seth Schlessel. Take proactive steps today to secure your financial future and ensure peace of mind for you and your family.
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