When people learn they are going to be the beneficiaries of someone’s estate and will inherit property, many of them often wonder whether it will actually cost them money to do so. We often hear about raising or lowering the federal and state estate tax, sometimes referred to as “the death tax” and all this talk can be quite confusing. While every situation is different and the tax code itself is quite complicated, there are a few basic principles beneficiaries should be able to rely on.
To start, New York is one of only a handful of states with a state inheritance tax but there are exceptions to the rule and that amount has increased substantially over the past few years. As of April 2017, the exemption on inheritance tax in New York is $5.25 million, meaning beneficiaries will only be taxed for assets worth more than this amount. The tax rate for inherited assets above $5.25 million is five to 16 percent, much lower than the federal inheritance tax rate of 40 percent.
Unlike other states with inheritance taxes, New York has a “tax cliff,” meaning if your inherited assets are greater than the tax exemption then the entire value of the asset is taxed. By contrast, other states with inheritance taxes only tax at the value above the exemption threshold. New York is one of the only states to institute its inheritance tax rate this way and although this may seem steep, the current tax rates are much more fair than they used to be.