New York Estate Tax

Some New York estates that aren’t large enough to owe federal estate tax may still owe an estate tax to the Empire State. Under current law, estates of more than $1 million are subject to the New York estate tax.

Which Estates Must File

Estates with an estimated gross value of more than $1 million must file a New York estate tax return. Deductions may reduce the amount of the taxable estate, so that the estate may not actually end up owing any tax. But a tax return must still be filed.

New York estate tax is assessed on the estates of New York residents, and also on real estate or other New York property owned by nonresidents.

Calculating the Value of the Gross Estate

When you’re adding up the value of the deceased person’s gross estate, count all the person’s property, including:

• Bank accounts, certificates of deposit, and investment accounts, including those for which a payable-on-death beneficiary was named
• Real estate
• Vehicles and other personal property
• Life insurance proceeds from policies on the deceased person’s life, unless that person didn’t own the policy
• Retirement account funds
• Business interests (sole proprietorship, limited liability company, or small corporation)

If the person owned any of these assets with someone else, count only the value of the deceased person’s share. For example, if the deceased person owned a house with his wife, half of its value is included in his estate. (An exception: if property was owned in joint tenancy with someone else, then all of it is included in the estate except for funds that the other person contributed.)

Also include these assets, which might not be as obvious:

• Taxable gifts made during life. If the deceased person made large gifts (more than the annual exclusion amount, which is currently $13,000 but was lower in the past, to one recipient in one year), then the taxable amount of those gifts must be added to the value of the estate.
• Some transfers made in the three years before death. If the deceased person transferred a life insurance policy to an irrevocable life insurance trust within three years of death, the value of the policy must also be included in the estate.
• Assets held in trust. Assets held in a revocable living trust and other trusts the deceased person controlled are included in the taxable estate.

Forms to File

The New York estate tax return is called Form ET-706. If the deceased person was not a New York resident, the estate must also file Form ET-141, the New York State Estate Tax Domicile Affidavit, declaring the person’s residence. The estate must also file a federal estate tax return (IRS Form 706), with the state—even if the estate is not required to file it with the IRS.

You must file the state return, and pay any tax due, nine months after the death, unless you have received an extension from the state. (Extensions can be requested using Form ET-133.) You can arrange for the estate to pay the tax in installments.

How Much Tax Will Be Due?

The New York estate tax rate is much lower than the federal estate tax rate; it starts at about five percent and tops out, for very large estates, at 16%.

New Yorks Passes on ‘Portability’

Effective for deaths in 2011, spouses can share their individual federal estate tax exemptions. If the first spouse to die doesn’t use up of his or her entire $5 million federal estate tax exemption, then after the second spouse dies, his or her estate can use anything that was left over by the first spouse. This is called “portability” of exemptions. New York, however, does not allow spouses to share their $1 million exemptions with each other.

Property Left to a Surviving Spouse

Property left to a surviving spouse is exempt from both state and federal estate tax, no matter what the amount. Because New York began allowing same-sex marriage in 2011 (it had already recognized same-sex marriages that were legally begun in other states), same-sex couples now enjoy the same right to leave assets to their spouses, free of estate tax, as do other married couples. When it comes to federal estate tax, however, same-sex couples are still denied this tax break.

Get Expert Advice

Preparing an estate tax return, whether for a state taxing authority or the IRS, is not a do-it-yourself job. Experienced preparers typically charge several thousand dollars to prepare a federal estate tax return, which is lengthy and complicated.

So even if you’re comfortable with tax returns, get help from a lawyer or CPA (not your regular income tax preparer) who has experience with estate tax returns and procedures.