When you sit down to create your estate plan, you will likely consider a number of factors when making decisions within that plan. One important factor that should always be taken into account when estate planning is the impact taxes will have on your estate. Every estate is potentially subject to federal gift and estate taxes; however, will your estate be subject to a New York estate tax as well? If you are a resident of the State of New York, knowing the answer to that question is crucial when creating your estate plan.
Will My Estate Incur Federal Gift and Estate Taxes?
The federal gift and estate tax is effectively a tax on the transfer of wealth. During the probate of an estate, any federal gift and estate tax due must be paid before estate assets can be transferred to the intended beneficiaries and/or heirs of the estate. This is Uncle Sam’s way of ensuring that the estate taxes are paid. The tax is imposed, at the rate of 40 percent, on the combined value of all gifts made by the decedent during his/her lifetime and the value of all estate assets owned at the time of death. For example, if you made gifts during your lifetime valued at $3 million and left behind an estate valued at $6 million, the combined total of $9 million would be subject to federal gift and estate taxation. Fortunately, every taxpayer is also entitled to make use of the lifetime exemption amount which was permanently set at $5 million in 2012 but is adjusted annually for inflation. For 2016 the lifetime exemption limit is $5.45 million. If you applied the lifetime exemption to your $9 million estate you would have $3.55 million remaining that would be taxed at the rate of 40 percent. Your estate would owe $1.42 million in federal gift and estate taxes.
Do I Need to Worry about a New York Estate Tax?
All estates are subject to federal gift and estate taxes; however, not all estates are subject to a state gift and estate tax because not all states impose an estate tax. The State of New York, however, is one of the states that does impose a state gift and estate tax.
If you were a resident of the State of New York at the time of death, your estate must file a New York State estate tax return if:
- the amount of your federal gross estate, plus
- the amount of any includible gifts,
exceeds the basic exclusion amount applicable at the date of death.
If you were not a resident of the State of New York at the time of your death, your estate may still have to file a New York State gift and estate if the estate includes any real or tangible property located in New York State, and
- the amount of your federal gross estate, plus
- the amount of any includible gifts,
exceeds the basic exclusion amount applicable at the date of death.
An includible gift is any taxable gift under section 2503 of the Internal Revenue Code (IRC) that:
- was made during the preceding three-year period ending on your date of death, and
- is not already included in your federal gross estate
The exclusions amount, which is similar to the lifetime exemption used at the federal level, is subject to change each year. For a date on or after April 1, 2016 but before March 31, 2017 the exclusion amount is $4,187,500. For a date of death on or after April 1, 2017, and on or before December 31, 2018 the exemption amount is $5,250,000.
The rate at which your estate is taxed will also vary and is also subject to change.
One thing that is important to notice is that your estate could be exempt from paying federal gift and estate tax but not exempt from the payment of New York estate taxes because of the lower exemption amount used by the State of New York.
Contact Us
For more information, please download our FREE estate planning worksheet. If you have questions or concerns relating to the New York estate tax, contact the experienced estate planning attorneys at the Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.
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