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How Do I Avoid Estate Taxes?

Make it a priority to get started with an experienced estate planning lawyer.

There are a few ways you can avoid paying estate taxes. Strategies include liquidating your assets, using trusts, and giving your loved ones tax-free cash gifts. For most individuals, a group of strategies are necessary to reduce or even eliminate one’s estate tax obligation during the estate planning process.

How Do I Avoid Inheritance Tax?

You can help your loved ones avoid having to pay taxes on your assets after your death. It is important to note that although the terms “inheritance tax” and “estate tax” are frequently used interchangeably, they do not refer to the same tax. New York does not impose a state inheritance tax.

If your estate is worth less than $5.49 million, you can gift it all to your heirs without them incurring taxes. If you are married, you can double this amount by both you and your spouse using your exemptions. Other ways to avoid estate taxes include moving assets into trusts such as a Charitable Remainder Trust, Qualified Personal Residence Trust, an Irrevocable Life Insurance Trust, or a Charitable Lead Trust. Each has different rules regarding which types of asset it can hold and how moving their use impacts your ownership of the asset.

Is Inheritance from a Trust Taxable?

The answer to this question depends on the source of the income in the trust. Sources of income like rental properties and dividend-generating investments are subject to taxes, but these taxes are the responsibility of the trust, not of the individual receiving them. But a beneficiary can be required to pay taxes on these types of assets when he or she sells them or transfers them into his or her own name and profits from the assets.

The type of trust that holds the assets also determines their tax obligations. Assets received from simple trusts are counted as income earned by the receiver during the tax year during which they were received. As such, they are taxed as income. Assets from a complex trust may be considered to be either income or capital gains, and this distinction determines their tax obligations and whether the responsibility lies with the beneficiary or the estate.

What is the Tax-free Gift Limit to Family Members?

You are currently permitted to gift up to $14,000 to each of your chosen receivers without having to pay taxes on the gifts each year. If you are married and you and your spouse want to gift your assets together, you are permitted to give away up to $28,000 per receiver each year without incurring taxes on the gifts.

As discussed above, the current gift tax exemption limit per individual is $5.49 million. Combined with your spouse, you can gift approximately $11 million to your loved ones without having to pay taxes on the gifts, as long as you have not made prior lifetime gifts. The term “lifetime gift” refers to the amount of money an individual can gift to others beyond the annual exclusion limit before having to pay gift taxes.

Work with an Experienced New York Estate Planning Lawyer

If you have not begun the estate planning process yet, make it a priority to get started with an experienced estate planning lawyer. Contact Theodore Alatsas ESQ today to set up your initial consultation in our Brooklyn office.