Giving gifts is a meaningful way to share their success and provide for their loved ones. Whether it's helping a child with a down payment on a first home, paying for a grandchild's education, or simply sharing wealth, these acts of generosity come from a place of love and care. But without careful planning, these well-intentioned gifts can have unforeseen tax consequences for both you and your family.
The world of estate planning and taxes can feel complex and intimidating. Our goal is to demystify these concepts, helping you understand the key rules so you can make informed decisions that honor your wishes and protect your family's financial future.
Understanding the Basics: Federal and New York State Rules
When it comes to gift and estate taxes, there are two sets of rules to consider: federal and state.
Federal Rules: The federal government has a "unified" gift and estate tax system. This means that gifts you make during your lifetime that are above the annual exclusion amount will reduce your lifetime exemption. For 2025, the annual gift tax exclusion is $19,000 per person. You can give up to this amount to as many people as you want each year without it affecting your lifetime exemption. The lifetime gift and estate tax exemption for 2025 is $13.99 million per individual, which is the total amount you can give away during your life and at your death before taxes are owed.
New York State Rules: Here in New York, the rules are different. The good news is that New York does not have its own gift tax. However, it's crucial to be aware of the "three-year clawback" provision. If you make a gift and then pass away within three years, the value of that gift is added back into your estate for the purpose of calculating New York's estate tax. This can be a critical consideration, especially for individuals with estates valued near or above the New York State estate tax exemption, which is $7.16 million per person in 2025.
Common Gifting Scenarios and How to Handle Them
Gifting Cash: For gifts of cash, staying within the annual exclusion amount ($19,000 per person in 2025) is the simplest way to avoid any tax reporting requirements. For a married couple, this effectively doubles to $38,000 per recipient per year.
Gifting Real Estate: Gifting real estate in New York requires extra caution. Transferring a property to a family member is considered a gift, and its fair market value can trigger gift tax reporting requirements. Additionally, this can have significant capital gains tax implications for the recipient later on.
Educational and Medical Expenses: There are special exclusions for these types of gifts. You can pay tuition or medical bills directly to the educational institution or healthcare provider on behalf of another person, and this gift will not count against your annual or lifetime gift tax exemptions.
A Compassionate Approach to Planning
We understand that thinking about these topics can be emotional. Your desire to provide for your family is at the heart of your decision-making. Estate planning is not just about numbers and tax forms; it's about securing your legacy and ensuring your loved ones are taken care of in the way you envision. It’s about creating peace of mind.
This is why proactive planning is so important. By working with a knowledgeable professional, you can craft a strategy that achieves your goals while minimizing potential tax burdens and avoiding unforeseen complications.
Don't let the fear of complex tax laws prevent you from being generous. The best way to navigate these waters is with a clear, well-thought-out plan. Martin Law PC has been helping New York families for years when it comes to estate planning. We are here to offer the guidance and support you need.
Contact us today at (845) 764-8104 to schedule a consultation and begin the conversation about protecting your legacy and your family’s future.