A New York Estate is subject to potential estate taxes. The tax is imposed under both Federal and New York State laws. The New York Probate Lawyer Blog has previously talked about estate taxes. It is the duty of an estate fiduciary such as an Administrator or Executor to determine whether a decedent’s estate must pay any estate tax and to actually pay the tax.
Both the Federal and New York estate tax is due to be filed and paid 9 months following a decedent’s date of death. An automatic extension of 6 months is available to file the tax return. The information required to be reported is a detailed list of all of the assets, debts, expenses and other financial data that provide an economic snap-shot of an estate.
Estate assets are typically valued as of the decedent’s date of death. This gross estate includes all items owned or controlled by the decedent or in which the decedent had an interest as of his death. Such assets include bank accounts, real estate, stocks, bonds and other items having value such as copyrights, trademarks and membership interests in businesses like a partnership or limited liability company.
During the course of estate settlement, it may be easy to obtain date of death values for assets such as bank accounts, real estate, stocks and bonds. Other items such as business interests may be difficult to value and subject to dispute. Upon the review or audit of an estate tax return, the Federal or State tax authorities may contest the value of an asset or deductible expense or liability.
An example of such estate tax dispute is presently occurring with the estate of the late pop star Michael Jackson. As reported by Patrick Temple-West in Reuters.com on August 23, 2013, the IRS claims that the Jackson estate owes Federal tax and penalties of $702 million. In the article “US Agency says Michael Jackson estate owes $702 million in taxes“, it is reported that the estate claimed in its tax filing, among other things, the image and likeness of Jackson had a value of only $2,105 while the IRS placed its value at $434 million.
Similar tax disputes can arise concerning the value of estate tax deductions such as liabilities, debts or expenses incurred in estate administration. As can be seen, potential estate taxes should be a major consideration in estate planning. This is particularly so when a large estate tax liability is expected and there are limited liquid assets available to pay the tax bill. Since the taxes need to be paid within 9 months after a death, there may be very little time to sell such items such as real estate or a cooperative apartment in order to obtain the funds to pay the tax. In many instances the use of life insurance or other pre-death financial planning can help solve this post-death liquidity dilemma.
At the present time, the Federal estate tax exemption is $5,250,000 and the New York exemption is $1,000,000. Also, both jurisdictions allow an unlimited marital deduction. However, the challenge presented in an estate plan is to limit the tax liability when a potentially taxable estate is to be ultimately paid to a non-spouse. In such situations the taxable amounts cannot be protected by the marital deduction.
It is essential that a New York Estate Planning attorney be provided with information regarding a person’s asset values and possible estate tax deductions. In this manner the appropriate tax plan and beneficiary designations can be formulated in documents such as a Last Will or Living Trust.