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An estate tax is imposed by the federal or state government and can be as much as 46% of the value of the estate.

Who Pays Estate Taxes?

Estate taxes are usually only imposed on ‘affluent’ estates, meaning only the wealthy are subject to this tax. Currently there is no federal estate tax, but next year the federal estate tax is likely to return, and most people estimate it will affect estates valued at $1 million or more. Additionally, since 2004, New York State has imposed its own estate tax for estates valued at $1 million or more.

Estate taxes do not apply to the transfer of an estate to a spouse or a charity. However, any other transfer is subject to taxes.

How Are Estate Taxes Different from Gift Taxes?

Estate and gift taxes are not the same, but they are imposed in the same manner by the government. Estate taxes are imposed by the federal government and also by some states, including New York State. A federal gift tax also applies to estates valued at over $1 million. Sometimes these taxes also go by the term ‘inheritance tax’ or even ‘death tax.’

How Is My Estate Value Calculated?

There are several factors that go into calculating the value of your estate. The starting point is taking the total value, called the ‘gross estate.’ This includes your real property, property owed to you, annuities, some life insurance policies, and any property that might become yours if you survive someone else.

Next, certain subtractions are made from the gross estate to arrive at the ‘taxable estate.’ This is the value which will be subject to tax, hence the name ‘taxable estate.’ Subtractions may include funeral expenses, anything being transferred to your spouse and any charitable contributions.

Beware of Loopholes

None of us want to surrender our money to the government in the form of taxes, even after our death. Some people choose to pass along their estate to their grandchildren in hopes of avoiding the estate tax through a generation skip. Unfortunately, this may be a big mistake because doing so can nearly double the amount of taxes owed on the estate.

Another common practice to avoid paying an estate tax is to gift or deed your estate to your loved one(s). However, the federal government imposed a gift tax to apply to these instances too, making it an estate tax in disguise.

How Can I Avoid Making Costly Mistakes for My Loved Ones After I Die?

Taxes are a complicated matter, so unless you have a background in law, you probably won’t have much success on your own. For help on estate planning and to make sure your loved ones pay as little tax as possible upon your death, consult an estate planning attorney.

Incapacity or disability planning is an important part of your estate plan. It is vital to the well-being of yourself and your loved ones that your estate plan effectively guards against the possibility of disability or incapacity.

Most people think about estate planning and create a plan based on their eventual death, but they overlook the possibility of becoming disabled. Yet, becoming disabled could take away your ability to make decisions on your own regarding your health and your estate. In this case, you will need someone to make those decisions for you.

What if I do not have a Disability or Incapacity Plan?

In the event you do not have a specific person designated before you become incapacitated or disabled, the court will appoint one for you. This is called Guardianship, and the person making decisions for you is called the guardian.

Who would you rather have making your personal decisions: Someone you know and trust or someone appointed by the court?

How do I Create an Incapacity or Disability Plan?

Start by completing an Advance Medical Directive including a Health Care Proxy. This will legally designate someone to make health-related decisions on your behalf. This person is known as your Proxy. It is a good idea to talk in detail with this person beforehand. Make sure they will be available to make medical decisions for you. Also, they should be comfortable making tough decisions related to your health. Obviously, this person should be someone you know and trust.

In the event that you cannot make financial decisions on your own as a result of your condition, you also need a Power of Attorney. This document designates someone of your choosing to make all financial decisions on your behalf. Choose someone who you would feel comfortable paying your bills and overseeing your assets.

While you are creating your estate plan, be sure that your Nassau County estate planning attorney includes a thorough disability or incapacity plan. It is a good idea to use a Trust as a tool to help you and your loved ones in the event you are unable to make decisions on your own. The Trust essentially moves all of your assets into a Trust so your loved ones can access and oversee those assets for your benefit.

Creating a thorough and specific estate plan, including an incapacity or disability plan, will help make your life and that of your loved ones much easier.