NY State Estate Tax Law
Some states are more expensive to die in than others, and New York is one of them. Like the federal government, the state taxes your right to transfer your property to others when you die. Your estate pays the levy, not your heirs or beneficiaries, although their bequests may decrease by the amount of taxes owed. They can only receive what's left after your estate meets its tax obligation.
New York taxes the value of your gross estate. This is essentially everything you own at the time of your death. Even if an asset passes directly to a family member without the necessity of probate, such as real property held with rights of survivorship, it's considered part of your estate for tax purposes. Your gross estate includes property you may only have an interest in. It's not taxed in its entirety, however; only your share is included in your gross estate.
New York offers an exemption for estate taxes -- a dollar amount of property that can pass to your heirs or beneficiaries before the estate tax kicks in. The exemption is $1 million, so if your estate is worth $1.5 million, you must pay taxes on $500,000. The tax rate decreases incrementally with the value of your estate over this exemption amount. For example, if your estate is worth $1.5 million, the tax rate is 12.88 percent; your estate owes $64,400, or 12.88 percent of $500,000. If your estate is worth $2 million, the rate drops to 9.96 percent, and your estate must pay $99,600, or 9.96 percent on $1 million. If the value of your gross estate is between $1 and $1,093,785, the tax rate is a significant 41 percent.
New York's estate tax law applies to anyone who lives in the state. It also applies, but in a more limited way, if you live elsewhere but own property in New York: the value of the New York property is subject to estate tax. The exemption amounts and rates are the same, so your New York property alone must top $1 million before the estate tax applies.
Release of Lien
It may be necessary for the executor of your estate to sell assets so he can pay your estate's taxes in addition to your other debts. If so, he needs permission from the government to do so. New York's right to collect estate taxes creates a lien against the assets of your estate at the time of your death. The state must lift this lien to allow the sale of any of your property. Your executor must ask the state for a release of lien, and court approval may also be required.
Closing the Estate
When your estate pays any tax that's due, or if it's determined that your estate doesn't owe any taxes because its value is less than the exemption amount, the government lifts the lien. Your executor can settle the estate and make distribution of your assets to your heirs or beneficiaries when he receives a closing letter from the Department of Taxation and Finance, indicating the estate's status. An estate tax return is due within nine months of your death, though extensions may be granted, and it can take another six months for the estate to receive the closing letter. If the tax return includes any errors or discrepancies, it may take even longer.
Beverly Bird has been writing professionally for over 30 years. She specializes in personal finance and w, bankruptcy, and she writes as the tax expert for The Balance.