Estate of Affairs: A Handy and Essential Guide to New York Estate Tax

Posted On February 1, 2024

If you have a taxable estate, you can expect to pay one-sixth of its value in federal estate taxes. But what about New York State? How are New York State inheritance taxes different? What is the New York estate tax rate? 

If you live in New York and own a taxable estate, you’ll need to know the current New York state estate tax rules as well as the New York state estate tax exemption. At New York Legacy Lawyers, our Brooklyn estate tax planning lawyers can guide you through complex tax planning, including estate tax for beginners. We can provide tailored strategies that minimize taxes and maximize estate value for your beneficiaries. Whether you need help with wills, trusts, or other planning documents, our experienced lawyers offer personalized solutions. Contact us at (718) 713-8080 to schedule a consultation and secure your legacy.

What do New York residents need to know about the New York estate tax?

In this updated guide, we give you all the essential information you need to navigate these taxes.

New York Estate Tax

Changes in federal estate tax laws may exempt you from paying taxes on your estate, but you may still owe tax dollars to New York State. 

What is an Estate Tax?

An estate tax is a tax levied on the value of a deceased person’s estate before it is distributed to their heirs. This tax is also sometimes called a death tax. 

New York Estate Tax Rate

The New York estate tax rate is not fixed. It ranges between 3.06% and 16%. For 2018, estates valued at more than $5.25 million are subject to this tax. For 2019, the basic exclusion is $5.74 million. 

The NY estate tax is graduated. The more your estate is worth, the more you’ll pay in estate tax. If a taxable estate is worth over $10.1 million, you’ll pay that 16% tax rate. 

Calculating Your Taxable Rate

Using the New York state estate tax exemption of $5.25 million, you can calculate your taxable rate. 

What is the value of your estate? For example, if your is worth $5.35 million, you would pay taxes on $100,000. 

On the other hand, if your estate is worth 105% of $5.25 million, you would pay an estate tax on the whole amount. 

Marital Deduction

Property left to a spouse is exempt from both the state and federal estate tax. There no restrictions. 

When the first spouse passes away, the surviving spouse owes no estate taxes. 

Note: This unlimited marital deduction is only applicable to American citizens. If your spouse is a non-citizen, this deduction does not apply. 

What are the New York State Tax Return Requirements?

New York residents who have acquired assets that exceed the exempt amount at the time of their death will have to have a New York estate tax return filed. 

Filing the return is required whether or not a tax will be imposed. Because of deductions, it is possible that a tax will not be imposed even when the estate is worth more than the exempt amount. 

Even if you are not a New York state resident but own real estate or other tangible property, you may owe New York state estate tax. 

Topic Description
Estate Tax An estate tax, also known as a death tax, is levied on the value of a deceased person’s estate before it is distributed to their heirs.
New York Estate Tax Rate The New York estate tax rate ranges between 3.06% and 16%. For 2018, estates valued over $5.25 million are subject to this tax.
Calculating Your Taxable Rate The taxable rate is determined based on the New York state estate tax exemption. The entire estate is taxed if its value is 105% or more of $5.25 million.
Marital Deduction Property left to a spouse is exempt from state and federal estate tax. This unlimited deduction applies to American citizens but not non-citizens.
NY State Tax Return Requirements New York residents with assets exceeding the exempt amount must file a New York estate tax return. Filing is required regardless of tax imposition.
Non-Residents Owning Property Non-residents owning tangible property in New York may owe New York state estate tax.

What is Inheritance Tax in New York?

In New York, there is no inheritance tax that is imposed on the property and money received by an heir from a deceased person’s estate. Instead, the responsibility for paying inheritance taxes lies with the heir. However, it’s important to note that if a New York resident owns property in another state, their heirs may be subject to that state’s inheritance tax unless proactive measures are taken to avoid it.

New York imposes an estate tax which is calculated against the overall worth of the assets and funds possessed by the deceased person at the moment of their passing. The estate tax rates in New York State are progressive, starting at 3% and reaching a maximum of 16%. Additionally, there is a portion of a New York State estate that qualifies for an exclusion threshold known as the Basic Exclusion Amount (BEA). Estates valued at or below this threshold are exempt from New York State estate tax. The estate tax is settled by the estate itself, utilizing its own assets, prior to any allocation being made to beneficiaries or creditors.

Dealing with the intricate aspects of inheritance tax laws can be daunting. However, with the guidance of a skilled New York estate tax planning lawyer, you can navigate through these complexities with confidence. By partnering with an experienced lawyer, you can optimize your estate plan, reduce tax obligations, and guarantee a smooth transfer of your assets to your family members. Trust New York Legacy Lawyers to handle your estate’s future. We offer personalized and comprehensive estate planning services that cater to your specific requirements.

What is the Cliff Tax in New York?

Understanding the “cliff tax” in New York is crucial for estate planning. The state has set an estate tax exclusion amount, which for 2024 stands at $6,940,000, adjusted annually for inflation. This figure marks a significant increase from the $1,000,000 exclusion before the 2014 legislation changes.

The “cliff” refers to a unique estate tax rule in New York. If an estate’s taxable value exceeds 105% of the exclusion amount, the exclusion is entirely forfeited. An estate that “falls off the cliff” is taxed from the first dollar, without any exclusion benefit. 

How does one know if the cliff affects them? If your taxable estate is near or above the exclusion amount, or it’s expected to grow to that point, the cliff could be a concern. Calculating your taxable estate should include all assets like IRAs, real estate, and non-trust-held life insurance.

For estates under the exclusion amount, the cliff is not an immediate issue. However, it’s wise to review your estate plan, as changes in law may alter how your Will or Trust operates. For example, a credit shelter trust provision in a Will designed pre-2014 might operate differently under current law, potentially leading to unintended consequences.

To avoid “falling” off the cliff, consider these steps:

  • Reassess your estate plan to understand its function under current law.
  • Use a credit shelter trust to preserve the New York exclusion amount of the first spouse to die. This is crucial as New York’s exclusion isn’t portable between spouses.
  • Reduce taxable estate through gifting, thus managing the estate’s size relative to the exclusion amount.
  • Maintain flexibility by incorporating elements like disclaimer trusts, allowing the surviving spouse to adapt to the legal and financial landscape at the time of their spouse’s death.

Navigating the cliff tax effect in New York can be complex, but with careful planning and legal guidance, it is possible to mitigate its impact on an estate. Contact a skilled estate tax planning attorney to potentially minimize the impact of taxes on your estate.

Keeping Up With Tax Laws

Whether you are filing taxes for the first time or a seasoned veteran, you need to keep up with the federal and state tax laws. New York estate tax and other state tax rules can differ from those of the remaining 49 states.

Ensure a smooth transition for your loved ones with guidance from New York Legacy Lawyers. Our Brooklyn estate tax planning lawyers offer comprehensive assistance in navigating the complexities of New York estate tax law. Discover valuable insights and practical solutions to protect your assets and minimize tax liabilities. Don’t let the intricacies of estate taxation overwhelm you—contact (718) 713-8080 today to schedule a consultation and secure your family’s financial future.