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Monday, September 26, 2022

Taxable Estate: What Is (and Isn’t) Included?

While considering the financial impact of your death may seem morbid, having an estate plan in place can protect your heirs from headaches down the road and ensure that your assets are distributed according to your wishes. It is crucial to understand the various types of assets included in your estate plan and how they will be taxed.

Who must pay estate tax in 2022?

The current federal exemption for estate taxes in 2022 is $12.06M. Estate tax returns for estates valued at less than the exemption are not required to be filed with the IRS.

However, New York State implements its own estate taxes and has a lower exemption than that provided federally. For 2022, the basic exclusion amount for estates is $6,110,000. Estates that are valued higher than the basic exclusion rate will owe taxes. The state tax rates for estates above $6.11M vary from 3.06% to 16%.

Keep in mind that rules regarding estate taxes are constantly changing. Your estate should be regularly evaluated to ensure you have the protections in place to safeguard your assets.

What is included in my estate?

Your estate encompasses a wide variety of assets, including:

Assets Held in Your Name

Assets in your name are included as part of your estate. These include bank accounts, investments, business interests, real estate, and vehicles. The value of all assets held in your name is potentially taxable.

Assets Held in Joint Tenancy

Any assets that you hold jointly are included as part of your estate. For example, if you co-own a house with your spouse, half of the home’s value is included as part of the gross value of your estate. You’ll want to ensure that all assets held in joint tenancy are appropriately accounted for in your estate plan.

Assets Held in Tenant in Common

Tenant in common arrangements allow two or more individuals to own property or land. For example, individuals may inherit land from parents and share ownership with brothers and sisters. The percentage ownership you have of the land will be included as part of your taxable estate.

Annuities

Annuities are insurance contracts that provide guaranteed income streams for a certain period for their owners. Individuals who have annuities at their time of death will have the value of the remaining contract included in their taxable estate. An annuity’s value can potentially increase an estate’s value significantly.

Life Insurance

Most people have life insurance policies that provide a certain amount of money for their heirs upon their death. The amount of the policy’s provisions is considered to be part of the taxable estate. People who maximize their life insurance policies may find that taxes are owed upon their death.

Retirement Accounts

Finally, the value of an individual’s retirement accounts is included in the gross estate. Any 401ks, IRAs, or other retirement benefits will be considered for tax purposes.

What isn’t included in my estate?

Any property left to a surviving spouse does not incur any estate tax. This is known as the marital deduction. Thus, if you own property and designate your spouse as the beneficiary, it will not be included in the value of your gross estate.

In addition, any property that is left to a tax-exempt charity is not included when calculating whether estate taxes are owed.

Help with Your Estate

Estate planning is a complicated subject — especially in New York, one of the only states that tax an individual’s estate. To ensure that you’re prepared and to take advantage of all of the estate planning tools available, contact Merlino & Gonzalez in Staten Island, New York.

As a practice specializing in real estate and elder law, we can help you design an estate plan that minimizes potential taxes on property you designate for your heirs. Reach out to our team today.


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