A commitment to employees, clients and community: The Bonadio Group’s response to COVID-19. View Here

New York Estate Tax: 2020 and Beyond

For 2020, the Federal estate tax exemption is $11,580,000, and projected to rise to $11,700,000 in 2021 with inflation. Estate values will be taxed as high as 40 percent on amounts in excess of these limits. Married couples can utilize what is known as the “portability” option to effectively double this amount. After the first spouse dies, the estate’s executor elects portability to pass any unused exemption to the surviving spouse. However, New York residents should know that although this does help reduce Federal estate taxes, it will not help with the New York estate tax.

New York is one of many states that still tax estates. The 2020 NYS estate tax exemption is $5,850,000 and continues to be indexed for inflation. You can see that there is a large taxation discrepancy between the New York estate tax and the federal estate tax.

In addition to the taxability difference, New York also has two additional rules unfavorable to estates when compared to the Federal code.

  • First, the ability for surviving spouses to claim the portability option does not exist for the New York estate tax.
  • Second, there is what is known as the tax cliff. If the taxable estate exceeds 5 percent of that year’s exemption amount, $5,850,000 in 2020, there is no exemption and the entire taxable estate is subject to New York estate tax.

So how does this work, and what can be done to mitigate this difference in taxability?

There are a few popular ways of potentially reducing an estate value below $5,850,000. Deductions from an estate value can include items such as:

  • Prepaid funeral and administrative expenses
  • Charitable contributions
  • Credit shelter trusts to allow both spouses to keep the full exemption

Care also needs to be taken to avoid wasting one of the spouse’s estate exemption. For your estate plan to work as you intend, the make-up of your assets and beneficiary designations need to align with your estate planning documents. You can have well-designed wills and still not have everything play out as you mean for it too.

If you would like more information on how to value your estate or ways to reduce the taxability of your estate, please contact one of our Bonadio Estate & Trust professionals.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute an accountant-client relationship.