For deaths after January 1, 2019, New York taxes estates of more than $5,740,000, which means that even if your estate isn’t large enough to owe federal estate tax (which currently exempts estates up to $11.4 million in value), it may still owe an estate tax to the State of New York.
The New York estate tax rate is much lower than the federal estate tax rate (40%); the state rate starts at five percent and goes up to 16%. But watch out for the estate tax "cliff," see below.
The New York estate tax is applied unlike the taxes of other states. Under the systems of other states (and the federal government), if an estate is large enough to be subject to the tax, the amount that's over the exempt amount is taxed. For example, if the exempt amount is $1 million, and the taxable estate is $1.5 million, then $500,000 would be subject to the estate tax.
By contrast, New York taxes the entire value of an estate that exceeds the exempt amount.
For example, if someone dies in September 2019, leaving a taxable estate of $6 million, the estate would exceed the New York exempt amount ($5,740,000) by $260,000. In other states, the estate would pay a percentage of the excess amount ($260,000), but in New York the estate pays a percentage of value of the entire estate ($6 million).
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.
Even before the U.S. Supreme Court's decision that legalized same-sex marriage nation-wide, New York allowed same-sex marriage -- so same-sex couples could leave assets to each other free of New York estate tax. In fact, 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 could file for a refund of state estate tax paid.
If you are a New York resident at your death, and you leave assets with a total estimated gross value that exceeds the exempt amount, 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 the exempt amount. 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.
What’s in your estate, when it comes to adding up the value for estate tax purposes? Your executor will have to include:
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.
If the value of your gross estate exceeds the exempt amount at your death, 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.