It has become fairly common knowledge that individuals are now permitted to have up to $2 million in assets without having a federal estate tax problem. What is not common knowledge is that New York State imposes its own estate tax, which is separate and in addition to the federal tax levy.

Under current New York law, only $1 million of a person's assets (inclu-ding the home, life insurance, and investments) are protected from estate tax. What does this all mean to a New York resident? Even if your estate is below $2 million, your heirs may pay a significant tax upon your death. In fact, your family could wind up paying New York State as much as $65,000 in estate tax on assets of just $1.5 million.

How does one avoid the New York State estate tax? Clearly, making gifts of up to $12,000 per person each year is one way to reduce your taxable estate, for both federal and state purposes. Additionally, the law permits you to pay college tuition in unlimited amounts, provided the payments are made directly to educational institutions. You can also pay one's medical expenses, in unlimited amounts, provided the payments go directly to the providers of service.

A relatively simple way to avoid or at least minimize the New York State estate tax is to set up a credit shelter trust upon the death of the first spouse, even if the combined assets of husband and wife are less than $2 million. For example, if one spouse dies and the combined assets of both spouses are $1.4 million, placing $400,000 of the deceased spouse's assets into the trust will avoid the New York State estate tax which would otherwise be imposed upon the death of the survivor. Of course, in order to accomplish these tax savings, you must have credit shelter trust provisions in your wills and at least a portion of your assets must be individually owned, without beneficiary designations.

Even though the federal estate tax may not be a concern to individuals and couples with assets under the $2 million amount, people should continue to prepare wills and develop estate plans so that most of their assets will pass to their loved ones, with an eye toward minimizing taxes. An up-to-date list of assets should be prepared and reviewed, with the assistance of an experienced estate planning attorney, at least every two years.