New York taxes estates of more than $1 million, which means that even if your estate isn’t large enough to owe federal estate tax (which currently exempts estates up to $5.25 million in value), it may still owe an estate tax to the state. The New York estate tax rate, however, is much lower than the federal estate tax rate; the state rate starts at five percent and goes up to 16%.
Property Left to a Surviving Spouse
Any property you leave to your spouse is exempt from both state and federal estate tax, no matter how large the amount. (This is called the marital deduction.) That’s why most couples don’t owe any estate tax when the first spouse dies.
New York allows same-sex marriage, so same-sex couples can leave assets to each other free of New York estate tax. After the U.S. Supreme Court's 2013 decision requiring the IRS to treat legally married same-sex couples like other married couples, the state announced that it would extend, retroactively, the time during which same-sex couples received equal treatment. As a result, some surviving spouses may be able to file for a refund of state estate tax paid. (See New York to Refund Estate Tax Paid by Surviving Same-Sex Spouses.)
The New York Estate Tax Return Filing Requirement
If you are a New York resident at your death, and you leave assets with a total estimated gross value of more than $1 million, your executor will have to file a New York estate tax return. The estate may not actually owe tax, because allowed deductions may reduce the value of the taxable estate below $1 million. But the estate tax return will still have to be filed.
Your estate could also owe New York estate tax if you’re a nonresident but own real estate in New York property, or keep other valuable tangible property there. The $1 million exempt amount is the same.
What’s in your estate, when it comes to adding up the value for estate tax purposes? Your executor will have to include:
- Money in bank accounts or certificates of deposit
- The value of investment accounts
- Real estate
- Personal belongings
- Life insurance proceeds (unless you transfer the policy to another owner, such as an irrevocable trust)
- Retirement account funds
- The value of your share of a small business (your shares of a corporation you run, the value of your membership interest in a limited liability company, or the entire value of the business if you’re a sole proprietor)
It doesn’t matter whether or not you own assets in a living trust or have named a beneficiary for them. The taxing authorities don’t care whether or not an asset goes through probate; all that matters is that you own it at the time of your death.
Filing the Tax Returns
If the value of your gross estate exceeds the exempt amount at your death (currently $1 million), your executor will file both a New York estate tax return and a federal estate tax return with the state. The federal return is required even if your estate isn’t large enough to have to file it with the IRS.
The returns and any payment are due nine months after the death, but your executor can get an extension from the state. Tax can also be paid in installments.
Estate tax returns are long and complex, so your executor will need to hire an experienced New York expert to prepare them. Lawyers and CPAs typically charge several thousand dollars to do the job.