When most people think about creating an estate plan, they focus on making sure their assets go to the right people after they pass away. That is a vital part of the process, but a well-crafted estate plan does something else just as important: it can significantly reduce the amount of taxes your estate — and your heirs — may owe in the future. Understanding how tax planning fits into your overall estate plan is one of the most practical steps you can take for your family's long-term financial well-being.
If you are ready to start protecting your family's future from unnecessary tax burdens, contact Adler Law Firm, PLLC today through our online contact form or call us at (516) 740-1184 — do not wait until it is too late.
What Is an Estate Plan and Why Does It Matter for Taxes?
An estate plan is a collection of legal documents and strategies that dictate what happens to your assets, finances, and healthcare decisions when you pass away or become unable to make decisions for yourself. It typically includes a will, one or more trusts, powers of attorney, and healthcare directives. While these tools each serve their own purpose, many of them also have direct tax implications.
Without careful planning, your estate may be subject to federal estate taxes, New York State estate taxes, and income taxes on inherited assets. A thoughtfully structured estate plan can reduce or even eliminate some of these obligations — meaning more of what you worked for stays with the people you love.
Understanding the Taxes That Can Affect Your Estate
Federal Estate Tax
The federal estate tax is a tax on the transfer of a person's assets at death. As of 2024, the federal exemption — meaning the amount your estate can be worth before federal estate taxes kick in — is $13.61 million per individual. Married couples can potentially double this through a concept called "portability," which allows a surviving spouse to use the unused portion of the deceased spouse's exemption. However, this exemption is scheduled to be reduced significantly after 2025 unless Congress acts to extend it, which is something many families need to plan around now.
New York State Estate Tax
New York has its own estate tax that operates differently from the federal system. The New York exemption is considerably lower — approximately $6.94 million in 2024 — and it comes with a notable "cliff" provision. If your estate exceeds the exemption by more than 5%, the entire estate becomes taxable, not just the amount above the threshold. This means even a modest overage can result in a substantially larger tax bill, making proactive planning particularly important for New York residents.
Capital Gains and Income Taxes on Inherited Assets
Beneficiaries who inherit assets generally receive what is known as a "stepped-up basis," which means the value of the inherited asset is reset to its fair market value at the time of the original owner's death. This can significantly reduce the capital gains taxes owed if the beneficiary later sells the asset. However, not all assets receive this treatment — inherited retirement accounts like IRAs, for example, are subject to their own income tax rules. A comprehensive estate plan accounts for these differences.
Key Estate Planning Tools That Help Minimize Tax Exposure
There are several legal tools that a Jericho estate planning attorney can help you use to reduce your estate's potential tax burden. Below are some of the most effective strategies:
- Revocable Living Trusts: A revocable living trust allows you to maintain control of your assets during your lifetime while streamlining the transfer of those assets to your beneficiaries after death. While this type of trust does not directly reduce estate taxes on its own, it can be structured alongside other tools to support a broader tax-reduction strategy, and it avoids the delays and costs of probate.
- Irrevocable Trusts: Unlike a revocable trust, an irrevocable trust removes assets from your taxable estate entirely once they are transferred in. Common examples include the Irrevocable Life Insurance Trust (ILIT), which keeps life insurance proceeds out of your estate, and the Qualified Personal Residence Trust (QPRT), which allows you to transfer your home at a reduced gift tax value. These tools can be powerful, but they come with trade-offs, including the loss of direct control over the assets.
- Annual Gift Exclusions: The IRS allows individuals to gift a certain amount each year — $18,000 per recipient in 2024 — without it counting against their lifetime gift and estate tax exemption. Used consistently over time, this strategy can gradually reduce the size of a taxable estate while benefiting your loved ones now.
- Charitable Giving Strategies: Donating to charity through your estate plan can both reduce your taxable estate and create a meaningful legacy. Tools like a Charitable Remainder Trust (CRT) or a donor-advised fund allow you to support causes you care about while also realizing potential tax benefits for your estate.
- Spousal Transfers and the Marital Deduction: Assets transferred to a U.S. citizen spouse at death are generally not subject to estate taxes, thanks to the unlimited marital deduction. This can be a useful short-term strategy, but it often simply defers the tax rather than eliminating it — which is why planning for what happens at the surviving spouse's death is equally important.
Taken together, these tools provide a range of options for reducing tax exposure. The right combination will depend on your unique financial situation, family structure, and long-term goals.
The Importance of Updating Your Estate Plan as Laws Change
Tax laws are not static. The federal exemption thresholds, New York State rules, and IRS regulations can all shift over time — sometimes significantly. The anticipated reduction in the federal estate tax exemption after 2025 is a prime example of a looming change that could affect many families who previously believed their estates were well below the taxable threshold.
Reviewing and updating your estate plan regularly ensures that your strategies remain aligned with current law. Life changes like marriage, divorce, the birth of a grandchild, or the purchase of new property are also important triggers for revisiting your plan. What worked well five years ago may no longer reflect the best approach for your situation today.
What Happens If You Do Not Have an Estate Plan?
Without an estate plan, your assets will be distributed according to New York State's intestacy laws — meaning a court, not you, decides who receives what. More relevant to tax planning, the absence of intentional strategies means your estate could face the full weight of any applicable estate taxes with no structures in place to reduce them. Retirement accounts, real estate, business interests, and investment portfolios may all pass in ways that trigger unnecessary tax consequences for your heirs.
The following are some common outcomes when families are left without an estate plan:
- Assets may pass through probate, which is a court-supervised process that can be time-consuming, costly, and public.
- Beneficiaries may owe more in income or capital gains taxes than they would have if assets had been transferred through a trust or other planned vehicle.
- High-value estates may face New York's cliff provision with no structures in place to keep the estate below the exemption threshold.
- Life insurance proceeds may be included in the taxable estate if no trust was established to hold the policy.
- Retirement accounts may be distributed in a less tax-efficient manner without proper beneficiary designations and planning.
Avoiding these outcomes is not difficult when the right plan is in place, but it does require thoughtful action before the need arises.
Starting the Conversation About Tax-Focused Estate Planning
Many families assume estate planning is only for the wealthy, but that perception can be costly — especially in New York, where the state exemption is notably lower than the federal one. If you own a home, have retirement savings, carry life insurance, or run a business, you likely have more to protect than you realize. Talking with a qualified attorney who understands both federal and New York State tax law is the most reliable way to know where you stand and what steps make sense for your circumstances.
Speak With a Jericho Estate Planning Attorney at Adler Law Firm, PLLC
Taking the time now to address potential tax exposure is one of the most meaningful gifts you can give your family. At Adler Law Firm, PLLC, we take the time to understand your full financial picture and walk you through the options available under current law — all in plain language you can act on. Whether you are starting from scratch or revisiting an existing plan, our team is here to help you make informed decisions with confidence.
To schedule a consultation with a Jericho estate planning attorney at Adler Law Firm, PLLC, reach out through our online contact form or call us at (516) 740-1184. We serve clients throughout Jericho, Long Island, and the surrounding communities, and we are ready to help you plan with purpose.