The New York estate tax only applies to the value of an estate that exceeds $6.58 million in 2023. That number continues to rise annually as inflation rises.
So, if a person’s estate is worth less than $6.58 million and they pass away in 2023, their estate does not owe any New York state estate tax. New York’s tax scheme has a so-called “cliff” that affects estates with a very large value.
The value of the estate may exceed the $6.58 million exemption amount by less than 5%. If that is the case, the estate must then pay taxes only on the amount that exceeds the exempt amount, which is currently $6.58 million. If the total value of the estate is more than 105% of the exempt amount, then the estate tax must be paid on the entire value of the estate.
The estate tax rate for New York is graduated. The tax rate starts at 3.06% and increases to a maximum of 16%.
What Is an Estate Tax?
An estate tax is a tax charged on the estate of a deceased person before the estate is distributed to the person’s heirs. The estate tax is specifically imposed when the estate is passed on to beneficiaries through a will or the legal intestate succession process. In some jurisdictions, estate tax may also be referred to as collateral inheritance tax.
There is a federal estate tax, but it currently applies only to estates that have a total value of about $13 million. There is also an estate tax in some states, including New York.
The purpose of estate taxes is to allow the government to tax the transfer of a decedent’s estate when it is distributed to the decedent’s heirs. This means that the estate property is taxable, similar to an excise tax, also known as a luxury tax.
Because of this, state laws, if any, that impose estate taxes are the laws that tax the value of a person’s property upon their death. Twelve states and the District of Columbia have an estate tax. Some states have an inheritance tax, which is a different type of tax. A few states have both.
Are Estate Taxes and Gift Taxes the Same?
In short, no. Estate taxes and gift taxes are not the same. A gift tax is applied to the value of property or cash given by one person to another if it exceeds a certain amount in the lifetime of the person who makes the gift. A gift is some asset given by one person to another when the recipient gives nothing of value to the giver, the “donor” in legal terminology.
Estate taxes are a tax liability that is imposed on the value of property in a person’s estate after they pass away and before the estate is distributed among the deceased person’s heirs.
To further differentiate estate and gift taxes, a gift tax is a tax levied on the value of gifts that the donor makes. The donor pays the tax if it is owed. The federal gift tax is, in part, intended to prevent people from avoiding federal or state estate taxes by giving away all their money and assets before they pass away.
As of 2023, A single donor may make a gift of property or cash with a value of up to $17,000 yearly, and married couples can give up to $34,000 yearly. These gifts may be in the form of cash or other assets given to any number of people or entities each year up to the annual limit without incurring any gift tax liability. The gift tax rate ranges from 18% to 40%.
Gifts made in the amounts of more than $18,000 to one person in one year are considered to be taxable gifts. As such, any amounts given over $18,000 may generate a gift tax. However, a gift tax is not due until a person has given away a total of more than $12.92 million in their lifetime. This amount is the same as the federal estate tax lifetime exemption. This $12.92 million lifetime exemption means that most people will never have to pay any federal gift tax.
How Is the Estate Tax Calculated in New York?
As noted above, the value of an estate is exempt from the New York estate tax up to $6.58 million. If the value of the estate is greater than the $6.58 million exemption amount by less than 5%, the estate must then only pay taxes on the amount that exceeds the exempt amount. That would be the value of over $6.58 million, up to 5% of that amount.
If the total value of the estate is more than 105% of the exempt amount, then the estate tax must be paid on the entire value of the estate.
What Is the New York State “Tax Cliff”?
As noted above, the New York state “tax cliff” refers to the maximum value an estate may have before the entire value of the estate is subject to the estate tax.
Specifically, the New York estate tax laws provide that if an estate in New York is large enough to be subject to the estate tax, the entire value of the estate must exceed the exemption amount by more than 105%. If this is true, then the entire value of the estate is taxed.
How Do I Avoid Falling off the New York Estate Tax Cliff?
One would avoid falling off the cliff by ensuring that they have an estate whose value is less than 105% of the exempt value amount, i.e., $6.58 in 2023. Consulting a local New York attorney for tax and estate planning advice would help a person put to use various strategies, e.g., gifts and trusts, to avoid the estate tax.
What Is Included in a Person’s Estate in New York?
In short, almost all of the property a person owns when they pass away is included in calculating the gross value of their estate. This means that a person’s gross estate may include any of the following:
- The total value of all of their real estate;
- The total value of all of their bank and investment accounts, including retirement accounts;
- The total value of their personal property, including their:
- Jewelry;
- Motor Vehicles;
- Any other valuable personal property, such as furniture, art, etc.
- Any property that is being held in a revocable living trust; or
- Any other property with value, such as brokerage accounts, business interests, or cash.
Do I Need an Attorney for Help With New York Estate Taxes?
As can be seen, the laws regarding taxes change yearly and differ from state to state. If you expect to leave an estate in New York, you want to consult an experienced New York estate lawyer in your area.
LegalMatch.com can connect you to an experienced estate lawyer who will be able to answer any of your questions. They can also help you determine the best legal options available for minimizing the tax that your estate may owe. Further, an attorney can also inform you of your legal rights and options and can represent you in court if legal action is necessary.
