After working hard your whole life, you want your legacy to pass on to your heirs; you don’t want to make a sizeable forced donation to Uncle Sam. Unfortunately, estate taxes, however, are a reality of the law in New York and nationwide. Yet, through careful estate planning and the use of strategies like gifting, you can minimize your tax burden and preserve your wealth for future generations.

Current Federal Estate and Gift Tax Exemptions at $5.12 Million

Your federal gross estate includes the value of everything you own at the time of your death as well as certain other items like life insurance proceeds. Equity in real estate (your home, farm, business, etc.), retirement funds, stocks, cars, collectibles, for instance, will be added together to determine the worth of your estate upon your death. In addition to estate taxes levied at the time of death, transfer taxes like the gift tax may be imposed if you transfer assets while you are still living.

Currently, the lifetime exemption for federal gift and estate taxes is $5.12 million for individuals. That means you can pass on up to $5.12 million to your heirs without paying a federal estate tax. The maximum tax for gifts or estates that exceed that amount is 35 percent.

However, if Congress fails to act by the end of this year, the maximum exemption reverts back to $1 million for 2013, and the maximum rate jumps to 55 percent. Thus, the remaining months of 2012 may be an excellent time to make a gift of significant assets to heirs in order to take advantage of the more generous exemptions offered this year.

New York State Estate Tax

New York is one of the few states that collects a state-level estate tax. If you are a resident of the state of New York at the time of your death, or if you are a resident or citizen anywhere in the U.S. at the time of your death and your estate includes real or tangible personal property located in New York, your estate may be subject to the New York state estate tax.

Your estate will only have to file a New York estate tax return if the total of your federal gross estate plus the federal adjusted taxable gifts and specific exemptions exceeds $1 million. Federal adjusted taxable gifts are the total taxable gifts you made after 1976 that are not included in your gross estate; specific gift tax exemptions apply only to gifts made after Sept. 8, 1976 and before Jan. 1, 1977.

To put it more simply, if you’ve made gifts during your lifetime that would have been taxed but for your gift tax exemptions, the amount of those gifts is added to your gross estate for purposes of determining whether you meet the threshold amount. Essentially, if at the time of your death all your property plus any amount of taxable gifts you’ve given away that were not previously included in your gross estate exceeds $1 million, your estate will have to file a New York tax return.

Get In Touch With a New York Estate Planning Attorney As Soon As Possible

Estate tax provisions are considered to be among the most complicated of the revenue code. There are many ways to shield your assets against overbearing transfer taxes, from setting up a dynasty trust to making gifts to your heirs during your lifetime.

The most important thing you can do to protect your legacy is to consult an expert estate planning attorney and get a thorough estate plan in place. It is especially important to establish or update your estate plan this year, when you may still be able to take advantage of more generous federal tax rates and exemptions.