Federal and State Estate Taxes in 2024: A Comprehensive Guide

Understanding taxes can be daunting, especially when it comes to estate and inheritance taxes. As 2024 unfolds, it's crucial to grasp how these taxes operate, both federally and at the state level. This guide will break down these concepts in layman's terms, with a special focus on New York State's estate tax.

What is Federal Estate Tax?

The federal estate tax is essentially a tax on the transfer of wealth upon someone's death. However, it only kicks in if the deceased person’s estate exceeds a certain value. For 2024, this exemption threshold is set at $13.6mm for individuals. This means if the total value of the estate is less than this amount, it escapes federal estate tax. Married couples get double that amount.

State Estate Taxes: New York's Approach

State estate taxes are similar to the federal estate tax but are governed by individual state laws. In New York, the estate tax applies to estates that exceed the state exemption limit, which is notably lower than the federal limit. For 2024, New York's exemption amount is $6.11mm. The tax rates for estates above this value range up to 16%. This lower threshold means that some estates may not owe federal tax but could still be liable for state tax in New York.

Inheritance Tax Explained

Inheritance tax is a separate concept. It's a tax imposed on what beneficiaries receive from an estate, rather than on the total value of the estate itself. Not every state levies this tax, and for those that do, the rules and rates vary. The key point here is that the tax is paid by the person inheriting the money or property, not by the estate. There is currently no inheritance tax in New York.

2025: Changes and Implications

The current estate tax exemption, set under the Tax Cuts and Jobs Act of 2017, is scheduled to sunset in 2025. This means that the significantly increased exemption amounts for estate and gift taxes, which have been adjusted for inflation annually since 2018, are set to revert to their pre-2017 levels. Post-2025, unless new legislation is passed, the exemption amounts will return to approximately $5.5 million per individual, adjusted for inflation. This change could have a significant impact on estate planning strategies, potentially subjecting more estates to federal estate taxes. It's important for individuals and families to work with an estate planning attorney to reduce or eliminate tax due.



In Summary

-Federal Estate Tax: Affects large estates, with the 2024 exemption at $13,610,000. This number is set to decrease significantly in 2025. 

-New York State Estate Tax: Applies to estates valued over $6,110,000, with tax rates up to 16%.

-Inheritance Tax: Paid by beneficiaries, not applicable in all states, and varies where it is applicable.

We Can Help!

This stuff is confusing – we get it! That’s why we discuss taxes at every Peace of Mind Planning Session. You’ll fill out a questionnaire before we meet so we can calculate your potential tax liability at your session. If you’re above the limits, we’ll share strategies for reducing or eliminating your taxes altogether. The session is normally $350, but we’ll waive that fee if you mention this blog post. Book today HERE. Space is limited, so don’t delay!