We find that people absorb information well when it is presented in a question and answer format. With this in mind, we will look at some commonly asked New York estate tax questions here.
Do all NY residents pay the state-level estate tax?
No, there is an estate tax exclusion that represents a certain amount that can be transferred tax-free. The portion of an estate that exceeds this amount would potentially be exposed to taxation. In 2022, the New York estate tax exclusion is $6.11 million.
What is the rate of the tax?
It is a graduated rate that depends on the value of the estate. The rate begins at 3.06 percent, and it tops out at 16 percent.
Is a surviving spouse required to pay the estate tax?
There is an unlimited marital deduction, so there is no taxation on transfers between spouses.
What if I leave property that is located in New York to my son that lives out of state?
Under those circumstances, the New York estate tax could apply to your son’s inheritance. It depends on the value of the estate relative to the exclusion.
For your information, this also applies to New York residents that inherit out-of-state property. If there is an estate tax in the state where the property is located, it would be applicable.
There are 12 states that have state-level estate taxes, including Connecticut, Massachusetts, Rhode Island, Vermont, Maine, and Maryland. The exclusion in Massachusetts is just $1 million.
What is the New York estate tax exclusion “cliff” that I have heard about?
This is an unusual provision that is unique to our state. If the value of your estate is more than 105 percent of the exclusion amount, the entirety of the estate is subject to the estate tax.
Can you give gifts while you are living to avoid the estate tax?
Technically, the answer would be yes, because there is no New York gift tax. In fact, there are no state-level gift taxes anywhere in the country with one exception. Connecticut does have a gift tax to stop people from giving lifetime gifts to avoid the estate tax.
Though we do not have a gift tax, there is a 3-year claw-back provision. Large gifts that you give within three years of the time of your passing are considered to be part of your estate for tax purposes.
When is an estate tax return due?
A representative of the estate is required to file Form ET-706 within nine months of the passing of the decedent. If it is needed, the executor can file for a six-month extension.
How does all this compare to the federal estate tax?
The exclusion on the federal level is $12.06 million in 2022. However, it is going down to $5.49 million indexed for inflation in 2026. This is scheduled to occur as a result of the sunset of a provision that is contained within the Tax Cuts and Jobs Act of 2017.
On the federal level, the top rate is 40 percent. There is an unlimited marital deduction, and a surviving spouse can use their deceased spouse’s exclusion.
In addition to the estate tax, there is a federal gift tax. The two taxes are unified, so the multimillion dollar exclusion applies to large lifetime gifts and your estate.
There is a separate $16,000 per person annual gift tax exclusion. You can give this much to any number of gift recipients each year tax free without using any of your unified exclusion.
Schedule a Consultation Today
If your estate is going to be exposed to taxation, there are legal steps you can take to ease the burden. And of course, if taxes will not be a source of concern, we can provide the same level of assistance.
You can schedule a consultation appointment at our Manhattan, NY estate planning office right now if you call us at 212-355-5255, and you can use our contact form to send us a message.