New York State residents suffer from incredibly high estate tax rates. The combined federal and New York estate tax rates exceed 56%. Since retirement accounts are also subject to income taxes, the effective rate on these accounts such as IRAs, 401(k)s and profit sharing plans can be taxed in excess of 75%. If your goal is to leave an inheritance to your children at your death, you need to start planning now. Many estates will not be subject to estate taxes because the size of the estate is less than the estate tax exemption. The exemption for federal purposes is $1,500,000 (increasing to $2,000,000 in 2006). The exemption for New York purposes is only $1,000,000. Many individuals do not believe they have estate in excess of these exemptions but when you combine the value of their home, the value of all retirement accounts and pensions and the face value of all life insurance proceeds, the taxable estate can quickly exceed the exemption.
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