New York Probate Lawyer Blog

The New York Estate Settlement process may require that an Estate Tax Return be filed for a decedent's estate. Not all estates are required to file returns or pay an estate tax. In New York, the estate value threshold for having to file the return is $1,000,000. The Federal requirement is equivalent to the exclusion amount which for 2013 is a gross value of $5,250,000.

Even in an estate that is required to file a return, no estate tax may be due on account of various deductions such as the marital or charitable deduction or because of debts or liens such as mortgages or other claims. The gross estate value of an estate is comprised of all of the decedent's assets that are considered under the tax laws to be includable for estate tax purposes. These items include assets that were owned by the decedent in his name alone at death such as bank accounts, brokerage accounts, real estate, etc. The gross estate also includes assets owned by the decedent that were held jointly with a right of survivorship, and other items where there is a named beneficiary such as life insurance, retirement accounts (i.e., IRA's or 401K's) and Totten Trusts.

The New York Probate Lawyer Blog has previously discussed that assets owned in a decedent's own name typically are administered by an Executor or Administrator as part of the administration estate. Property that has named beneficiaries or joint owners is transferred automatically to such beneficiary/joint owner upon the decedent's death and is not subject to estate administration.

Regardless of the nature of the assets, where an estate is subject to estate tax, the tax must be paid due to the inclusion of such item for tax purposes. The issue that is always presented is what source is responsible for the payment of the estate tax - is it the decedent's administration estate or is payment the responsibility of the beneficiary or joint owner who received the property. Of course, like many answers in the legal world, the response is "it depends."

In the first instance, the tax laws generally require that the estate fiduciary (i.e. Executor or Administrator) is responsible for paying the tax.

It is a common practice that a provision in a decedent's Last Will provides that all of the decedent's estate taxes be paid from the decedent's administration estate which is the property owned by the decedent in his own name and passing under the Will. Such a provision would exempt from the payment of the tax any beneficiary of property passing outside of the Will such as insurance or jointly held assets. This result may not be fair to the persons who are beneficiaries under the Will since they are required to pay the estate taxes allocable to the assets passing to the other outside beneficiaries.

In order to avoid an unintended burden of estate taxes being placed on unsuspecting beneficiaries, a New York Estate Attorney will examine a client's entire portfolio of assets and discuss the tax issues with a client so that estate taxes can be properly allocated.

The basic law in New York is that each asset is to share its allocable portion of estate taxes. These principals are set forth in New York Estates, Powers and Trusts Law Section 2-1.8 entitled "Apportionment of Federal and State Estate or Other Death Taxes; Fiduciary to Collect Taxes from Property Taxed and Transferees Thereof". Therefore, if there is no specific direction in a Last Will or other instrument that changes this allocation, all of the outside beneficiaries must contribute their allocable share of estate taxes. EPTL Section 2-1.8 even allows the Surrogate to direct such persons to pay their share of the tax.

Estate Administration can be a very complex process. Calculating the amount of estate taxes that may be payable and determining the persons that are ultimately responsible for such payment adds even more responsibility to the job which each Executor and Trustee is required to perform. Since Estate fiduciaries are responsible for the proper payment of estate tax it is important that they obtain guidance from Estate Lawyers and tax professionals so that the interests of the estate and all beneficiaries are protected.

Continue reading "New York Joint Assets May Have to Pay A Share of Estate Taxes" »

Back at the end of 2010 when the Estate Tax had disappeared for a brief moment in time, Congress and the President agreed on a new and improved version of the law that raised the Federal Estate tax exemption to $5,000,000 for each individual. However, in the combined wisdom of these lawmakers, the modified tax provisions were to take effect for only two years and were scheduled to expire at the end of 2012 as part of the dreaded fiscal cliff. Certainly it did not seem to matter to the leaders that individuals who were engaging in Estate Planning and Gift Planning had no idea as to what plan they should follow after December 31, 2012.

Fortunately, before the bell tolled on 2012, the estate tax exemption of $5,000,000 (adjusted for inflation), was made a permanent structure of the Federal Estate Tax. There was a small change in the estate tax rate that increased the tax rate to 40 percent.

For New York State residents, there was no change to the $1,000,000 exemption. Also, the annual federal gift tax exclusion continues to rise with inflation and is presently at $14,000 for each individual gift.

The law that was recently passed is called the "American Taxpayer Relief Act of 2012". However, it is questionable whether most taxpayers are relieved since the recent payroll tax reductions are eliminated resulting in fewer dollars in most wage earners paychecks. A summary of some of the most relevant tax changes is set forth in an article by Steve Parrish in Forbes on January 9, 2013 entitled "What the New Tax Law Really Means and New 'Tax Price Points.'

Since Federal and New York State Estate Taxes appear to be here to stay, it is always a good idea to review an estate plan every few years. New York Estate planning lawyers know that even if there does not appear to be any tax impact, updating documents such as a Last Will, Living Will, Living Trust, Health Care Proxy and Power of Attorney is important to reflect changes in life and beneficiary planning. Estate planning is not just about taxes. The more mundane issues relating to the smooth transfer of assets and avoiding estate battles such as Will contests is always a paramount goal. This is especially true for business owners where estate planning papers and business agreements such as Shareholder Agreements are needed for effective business transition in case of death or disability.

Continue reading "The Estate Tax is Continued in the New Tax Law" »