Estate taxes are assessed upon a death. These taxes are paid on money and property, which in many cases was already taxed during the course of the owner’s life. When taxes are assessed on an estate, it can be detrimental to the integrity and the value of the estate. If someone inherits a family business or farm, often a lot of the inheritance is tied up in the land or business assets. There may not be liquid cash available to pay the tax and either a loan may need to be taken out or assets and property may need to be sold.
For those in New York, there are not only federal estate taxes to worry about but also state level estate taxes. It is important to understand when these taxes will be assessed and to explore options for reducing or eliminating estate taxes. The Smithtown estate planning lawyers at Mark S. Eghrari & Associates PLLC can help.
Estate Taxes in New York State
The New York Department of Taxation and Finance explains that when a New York resident dies, the estate of the deceased must file an estate tax return if the amount of his federal gross estate plus the amount of includible gifts exceeds the exclusion amount which applies at the time of his death. Includible gifts are most taxable gifts made within three years before the date of the death that were not already included in the federal gross estate.
The basic excludable amount differs depending upon the death of the death:
- If the death was between April 1, 2014 and March 31, 2015, the excludable amount is $2,062,500.
- If the death was between April 1, 2015 and March 31, 2016, the excludable amount is $3,125,000.
- If the death was between April 1, 2016 and March 31, 2016, the excludable amount is $4,187,500.
- If the death was between April 1, 2017 and December 31, 2017, the excludable amount is $5,250,000.
Estates have to file and pay the taxable amount that is due within nine months of the time of the death of the deceased. It is possible to apply for extensions, but extensions generally cannot exceed eight months.
The excludable amounts for New York are lower than federal estate tax limits, which means you can be taxed on an estate in New York even if you do not have to pay federal estate taxes. Under federal laws, the Internal Revenue Service makes clear that estates will not owe taxes until the value of the estate exceeds $5,450,000 as of 2016 (this amount periodically adjusts upward).
A person who is married is able to leave property and assets to a spouse without incurring any estate taxes. The exempt amount is also transferrable if it is not used. This means married couples together can pass more than $10 million on to heirs if they both combine their exempt amounts. The first spouse who passes away can leave assets to his or her husband or wife, who can then leave assets to children or other loved ones without federal incurring taxes on $10,900,000 in assets. New York estate taxes will be assessed.
The estate tax rate in New York is lower than the maximum federal rate, as the top tax rate on estates in New York is 16 percent compared with 40 percent. However, while the federal government imposes taxes only on amounts above the exempt threshold, New York imposes the tax on the entire estate once it exceeds the excludable amount. This is referred to as an estate tax cliff.
In determining whether the value of an estate, executors must include many different assets and types of property including:
- All money kept in bank accounts.
- All certificates of deposits.
- Investment accounts, including the value of stocks and bonds
- All real estate you own.
- Personal possessions
- Life insurance proceeds
- Money in retirement accounts
- Ownership interests in small businesses, including shares of corporations; membership interests in LLCs; and the entire company value if the business is operated as a sole proprietorship.
Property left to a surviving spouse is exempt from both federal and New York estate taxes.
How a Smithtown NY Lawyer Can Help Reduce Estate Taxes
A Smithtown estate planning lawyer at Mark S. Eghrari and Associates PLLC can provide you with the assistance that you need to understand the rules for federal and state estate taxes and to do everything possible to reduce or eliminate taxes on property and assets left after a death.
Give us a call at (631) 265-0599 or contact us online to learn more about how an experienced lawyer can help you. You can also download our estate planning checklist in order to learn more about what the components of a comprehensive estate plan.