Understanding Estate Tax Planning in NYC & Westchester
Estate tax planning is a critical component of comprehensive estate planning. For residents of New York City and Westchester, navigating the complexities of state and federal estate taxes can be daunting. Without a well-defined strategy, a significant portion of your hard-earned assets could pass to the government instead of your loved ones.
At Morgan Legal Group, we understand that your legacy is more than just property; it’s about the future you build for your family. Our seasoned attorneys bring over three decades of experience to the table, combining deep legal knowledge with strategic estate planning insight. We are dedicated to helping you minimize your estate tax liability and ensure your assets are distributed according to your wishes.
This guide provides an in-depth look at estate tax planning specifically tailored for individuals and families in the New York metropolitan area, with a focus on Westchester County. We will explore federal and New York State estate tax thresholds, common planning tools, and how proactive strategies can make a substantial difference. Our goal is to empower you with the knowledge needed to make informed decisions about your financial future and that of your heirs.
Federal Estate Tax Basics
The United States has a federal estate tax system. This tax is levied on the transfer of a deceased person’s assets to their beneficiaries. However, there is a substantial exemption amount. For 2026, the federal estate tax exemption is quite high, meaning only very large estates are subject to this tax.
This exemption is adjusted annually for inflation. Consequently, what constitutes a taxable estate can change from year to year. It’s crucial to stay updated on these figures, as a slight increase in asset value or a decrease in the exemption can push an estate into taxable territory. We at Morgan Legal Group diligently track these changes to provide you with the most current advice.
The gross estate includes all property the decedent owned or had certain interests in at the time of death. This can encompass real estate, bank accounts, stocks, bonds, life insurance proceeds, and business interests. Understanding the full scope of your assets is the first step in effective estate tax planning.
New York State Estate Tax Considerations
While the federal exemption is high, New York State has its own estate tax with a significantly lower threshold. This means that even if your estate is below the federal taxable limit, it could still be subject to New York State estate tax. This dual tax system is a primary concern for many New Yorkers. The state tax rates are also progressive, meaning higher value estates are taxed at higher percentages.
For 2026, the New York State estate tax exemption is considerably lower than the federal exemption. This difference is a key reason why specific estate tax planning strategies are essential for New York residents, even those with seemingly modest wealth. We often find clients are surprised to learn they may owe state estate taxes when they believed their assets were well within the exemption.
The calculation of the New York estate tax is complex. It’s not simply a matter of comparing your total assets to the exemption. Certain assets and deductions can influence the final tax bill. Expert guidance from an experienced estate planning attorney is invaluable in navigating these intricacies and legally minimizing your tax burden.
What is the New York Estate Tax Exemption for 2026?
As of 2026, the New York State estate tax exemption is set at $6.5 million per individual. This means that if the total value of your taxable estate exceeds this amount, the portion above the exemption will be subject to New York estate tax. The tax rates then begin at 10% and increase for larger estates.
It is vital to understand that this is a “cliff” exemption, meaning if your estate is even $1 over the exemption amount, the entire taxable portion is subject to tax. This can create a disproportionate tax liability. This is a crucial point for residents of Westchester, where property values can be substantial. We often see estates that are only slightly above the exemption facing significant tax bills.
This exemption amount is subject to change. It is important to work with an attorney who stays abreast of all legislative updates and tax law modifications. Our firm, Morgan Legal Group, is committed to providing current and accurate advice to protect your assets. We regularly advise clients on how to structure their estates to avoid this cliff effect and minimize overall tax exposure.
The Unified Credit and Estate Tax Planning
Both federal and state estate tax systems utilize a unified credit. This credit is essentially a dollar amount that effectively shields a certain portion of an estate from taxation. The unified credit is directly linked to the exemption amount. A higher exemption means a larger unified credit.
For example, the federal unified credit for 2026 is equivalent to the estate tax exemption for that year. Similarly, New York’s unified credit corresponds to its $6.5 million exemption. Understanding how this credit works is fundamental to planning your estate effectively. It’s not just about the total value of your assets, but how those assets are structured and transferred.
We utilize the unified credit to its fullest potential through various planning techniques. This often involves sophisticated strategies that may include the use of wills and trusts. The goal is to ensure that your unified credit is used efficiently to reduce or eliminate estate taxes for your heirs. Our approach is always tailored to your specific financial situation and family goals.
Strategies for Estate Tax Reduction
Fortunately, there are numerous strategies available to reduce or eliminate estate tax liability. Proactive planning is key. Delaying these decisions can lead to lost opportunities and higher taxes. Our firm specializes in developing customized strategies that align with your individual circumstances and objectives.
One of the most common tools is the use of irrevocable trusts. These are legal arrangements where assets are transferred to a trust, and the grantor relinquishes certain control. The assets within the trust are generally removed from the grantor’s taxable estate. There are many types of irrevocable trusts, each serving different purposes, such as:
- Irrevocable Life Insurance Trusts (ILITs): These trusts own life insurance policies, removing the death benefit from your taxable estate.
- Grantor Retained Annuity Trusts (GRATs): These trusts allow you to transfer appreciation in assets to beneficiaries while retaining an income stream for a specified period.
- Charitable Trusts: For those with philanthropic goals, charitable trusts allow for tax deductions while benefiting a charity.
Each of these requires careful consideration and expert drafting by attorneys experienced in estate planning.
Gifting Strategies and Annual Exclusions
Another effective method for reducing an estate’s size and thus its tax liability is through strategic gifting. The IRS allows individuals to gift a certain amount each year to as many individuals as they wish, without incurring gift tax or using up their lifetime gift and estate tax exemption. For 2026, this annual gift tax exclusion amount is $17,000 per recipient.
Gifting allows you to transfer wealth during your lifetime, effectively removing those assets from your estate. Over time, consistent annual gifting can significantly reduce the value of your taxable estate. This is particularly beneficial for residents in high-asset areas like Westchester, where wealth accumulation is common.
It’s important to note that gifts exceeding the annual exclusion amount will reduce your lifetime gift and estate tax exemption. However, this is not necessarily a bad outcome, as it still serves to reduce the size of your taxable estate. We can help you structure a gifting plan that maximizes the benefits of these exclusions and aligns with your overall estate planning goals.
Marital Deduction and its Role
The unlimited marital deduction is a powerful tool in estate tax planning. It allows assets to be transferred between spouses during life or at death without incurring gift or estate taxes. This means that a surviving spouse can inherit an unlimited amount from their deceased spouse without triggering federal or New York estate taxes.
However, simply leaving everything to your spouse may not be the most tax-efficient strategy, especially if the surviving spouse has a large estate of their own or if the goal is to pass assets to children or other beneficiaries down the line. Proper planning with marital trusts can ensure that both spouses’ exemptions are utilized effectively.
Consider a scenario where the first spouse to die has an estate that uses up their entire exemption. Without proper planning, the surviving spouse might inherit assets that, when added to their own estate, exceed the exemption amount upon their death. We use sophisticated techniques, such as bypass trusts (also known as credit shelter trusts) and qualified terminable interest property (QTIP) trusts, to leverage the marital deduction while preserving estate tax exemptions for future generations. This is a cornerstone of complex estate planning.
Portability of the Federal Estate Tax Exemption
A significant change in federal estate tax law was the introduction of portability. This allows the surviving spouse of a decedent to elect to use any unused portion of the deceased spouse’s federal estate tax exemption. This election must be made by filing a federal estate tax return (Form 706) for the deceased spouse, even if no tax is due.
For example, if the first spouse to die had an estate worth $5 million and the federal exemption was $13.61 million in 2024, the surviving spouse could potentially use the remaining $8.61 million exemption. This can be a valuable tool, especially for couples where one spouse has significantly more assets than the other.
While portability simplifies some aspects of estate planning, it doesn’t eliminate the need for strategic planning. It’s crucial to understand when and how to elect portability to maximize its benefits. Our attorneys can advise you on the implications of portability for your specific situation and ensure the necessary filings are completed correctly. This is particularly relevant for clients in Westchester who may have substantial individual estates.
New York State and Portability
It is critical to understand that New York State does not recognize federal portability. The New York estate tax is calculated independently based on the deceased individual’s estate. Therefore, even if a couple utilizes portability at the federal level, they may still be subject to New York estate taxes if the first spouse’s estate exceeded the New York exemption amount.
This distinction highlights the importance of having a New York-specific estate tax plan. Strategies that work well for federal taxes may not be sufficient for state taxes. Our practice at Morgan Legal Group is deeply rooted in New York law, enabling us to address these state-specific nuances effectively. We often work with clients who have significant assets in Westchester and are concerned about New York’s estate tax.
For couples where one spouse may exceed the New York exemption, planning might involve strategies to reduce the value of that spouse’s estate before death or to utilize certain trust structures that can help mitigate state estate taxes. This is where the expertise of seasoned estate planning attorneys becomes indispensable.
Understanding Different Types of Trusts
Trusts are versatile tools for estate tax planning. Beyond the irrevocable trusts mentioned earlier, revocable living trusts also play a significant role, primarily in avoiding probate, but they can also be integrated into tax-efficient strategies.
Revocable Living Trust: You create this trust during your lifetime, and you can change or revoke it at any time. Assets transferred into the trust avoid probate. While generally not a tax-saving tool during your lifetime, it can be designed to work in conjunction with other tax-saving trusts upon your death.
Irrevocable Trusts: As discussed, these trusts, once established, cannot be easily altered or revoked. They are the primary vehicles for removing assets from your taxable estate. Examples include ILITs, GRATs, Charitable Remainder Trusts (CRTs), and Charitable Lead Trusts (CLTs).
Spousal Lifetime Access Trusts (SLATs): These are a type of irrevocable trust created by one spouse for the benefit of the other. They can be structured to provide the benefiting spouse with access to the trust assets while also removing them from the grantor spouse’s taxable estate. This is a complex but often effective strategy.
Choosing the right type of trust depends on your specific financial situation, your beneficiaries, and your tax objectives. Our firm guides clients through this complex decision-making process. We help clients in Westchester understand the nuances of each trust and select the option that best suits their long-term goals.
The Importance of a Will in Estate Tax Planning
While trusts are powerful tools, a well-drafted Will remains a fundamental document in any estate plan. Your Will directs how your assets will be distributed upon your death. It also names an executor to manage your estate and can nominate guardians for minor children.
Crucially, your Will can direct the creation of trusts that take effect after your death. For example, a Will can establish a testamentary trust, often a bypass trust, to take advantage of the deceased spouse’s unused estate tax exemption. This ensures that assets pass to beneficiaries in a tax-efficient manner, even if no lifetime trusts were established.
Without a Will, your estate will be distributed according to New York’s intestacy laws, which may not align with your wishes and can lead to unnecessary estate taxes. We emphasize that a Will is not just about distributing assets; it’s about strategic distribution. Our wills are meticulously crafted to integrate with broader tax planning objectives.
Powers of Attorney and Healthcare Proxies
While not directly related to estate tax reduction, powers of attorney and healthcare proxies are essential components of a comprehensive estate plan. These documents appoint individuals to make financial and healthcare decisions on your behalf if you become incapacitated.
A financial power of attorney allows your chosen agent to manage your finances, pay bills, and handle investments. A healthcare proxy designates someone to make medical decisions for you. These are vital for ensuring your affairs are managed smoothly if you are unable to manage them yourself, preventing the need for a court-appointed guardianship.
While these documents don’t directly reduce estate taxes, they ensure that your assets are managed according to your wishes during your lifetime, which can indirectly impact the size and composition of your estate at death. For instance, efficient financial management can prevent unnecessary depletion of assets due to mismanagement during incapacity. Our firm drafts these critical documents with the same care and foresight as our estate tax plans.
Long-Term Care and Elder Law Considerations
As individuals age, concerns about long-term care costs and Medicaid eligibility become paramount. Elder Law is a specialized area that intersects with estate planning. Planning for long-term care needs can significantly impact the assets available for estate distribution and may require specific trust planning.
For example, certain irrevocable trusts can be structured to protect assets from the costs of long-term care, allowing for Medicaid eligibility while preserving wealth for beneficiaries. This is a complex area of law that requires a deep understanding of both estate planning and government benefits. We work closely with clients in Westchester to develop strategies that address both immediate care needs and long-term legacy goals.
Our expertise in elder law ensures that our clients are well-prepared for potential healthcare challenges. We also provide guidance on protecting seniors from financial exploitation and elder abuse, which can be a significant concern for families.
Estate Planning for Business Owners in Westchester
Business owners in Westchester often have complex estates. The value of a business can be a significant portion of their total net worth, and its disposition at death can have substantial tax implications. Estate tax planning for business owners requires specialized strategies.
Options may include buy-sell agreements, succession planning, gifting business interests during your lifetime, or establishing specific trusts designed to hold business assets. The goal is to transfer ownership and control of the business to heirs or designated successors in a way that minimizes estate taxes and ensures the business’s continuity.
We work with business owners to integrate their business succession plans with their overall estate tax strategies. This ensures that the business continues to thrive while preserving wealth for the family. Our experience extends to various business structures, and we understand the unique challenges faced by entrepreneurs.
The Role of Valuation in Estate Tax Planning
Accurate valuation of estate assets is critical for estate tax planning. The fair market value of all your assets at the time of your death is what determines the size of your taxable estate. This includes everything from real estate and investments to personal property and business interests.
For complex assets like businesses or unique art collections, obtaining professional appraisals is essential. Incorrect valuations can lead to overpayment of taxes or, conversely, audits and penalties from the IRS or New York State Department of Taxation and Finance. We often work with independent appraisers to ensure valuations are accurate and defensible.
This detailed valuation process is a cornerstone of our estate planning approach. It provides a clear picture of your estate’s worth, allowing us to develop the most effective tax reduction strategies. For clients in Westchester, where real estate and other asset values can be high, meticulous valuation is paramount.
When to Seek Professional Estate Tax Planning Advice
The question of “when” to start estate tax planning is often met with the answer: “as soon as possible.” While New York’s estate tax exemption is substantial, the federal exemption is also very high, meaning many people might think they don’t need to plan. However, life circumstances can change, asset values fluctuate, and tax laws evolve.
Ideally, estate tax planning should be an ongoing process. We recommend consulting with an experienced estate planning attorney when you experience significant life events such as marriage, divorce, the birth or adoption of a child, a change in financial status, the sale or purchase of a business, or upon retirement.
For residents of Westchester and the greater NYC area, where wealth accumulation is common, starting early is particularly advantageous. Proactive planning allows for the implementation of strategies that have a greater impact over time and avoids the need for rushed, less effective solutions. Our firm offers personalized consultations to assess your unique needs and goals.
Our Approach at Morgan Legal Group
At Morgan Legal Group, we believe that effective estate planning is deeply personal. We take the time to understand your family dynamics, your financial objectives, and your philanthropic desires. Our approach combines legal expertise with a compassionate understanding of your concerns.
Led by Russell Morgan, Esq., our team of experienced attorneys has been serving clients in New York for over 30 years. We are committed to providing clear, concise advice and developing tailored strategies that minimize estate tax liability and protect your legacy. We work diligently to ensure your wishes are honored and your family is provided for.
We are not just drafting documents; we are building comprehensive plans designed to provide peace of mind. Whether you are concerned about federal estate taxes, New York State estate taxes, or planning for the long-term care of a loved one, our firm has the knowledge and experience to guide you. We handle everything from simple wills to complex trust structures.
Next Steps: Schedule Your Consultation
Navigating estate tax planning in New York can be complex, but you don’t have to do it alone. Taking the first step is crucial to securing your financial future and ensuring your loved ones are protected. Our firm is here to provide the guidance and expertise you need.
We encourage you to schedule a consultation with our experienced estate planning attorneys. During your consultation, we will discuss your specific situation, answer your questions, and begin to outline a personalized strategy that addresses your estate tax concerns and overall legacy goals. You can also contact us directly for more information.
Let Morgan Legal Group help you build a secure and prosperous future for your family. We serve clients throughout New York, including Manhattan, Brooklyn, Queens, the Bronx, and Long Island. Visit our contact page or connect with us on Google My Business to learn more.