The cost of dying in New York

Posted at: 04/30/2014 9:18 PM
Updated at: 05/01/2014 3:55 PM
By: Steve Flamisch

ALBANY – It is often said that nothing is certain except death and taxes. In some cases, they go hand-in-hand.

"Most people have a basic understanding of what a will is, and what a will does, but very few people really understand the tax system," said estate tax planner Lou Pierro, of the Pierro Law Group in Latham.

Many people underestimate the value of their estate by forgetting to include annuities, retirement accounts, and the full face value of their life insurance policy, Pierro said.

"I have told a lot of people that they're millionaires, and they don't believe me," Pierro said. "We're all worth more on paper than we are in reality."

Your worth matters when you die. While the overwhelming majority of estates are tax-exempt, those that go over the exemption amount trigger a bill.

If your estate is valued at more than $2,062,500, your beneficiaries will owe New York a tax of up to 16 percent. If it’s valued at more than $5.34 million, they will owe the federal government up to 40 percent.

Over the next few years, New York is raising its exemption to match the federal level. The governor has said the change is good because it could prevent some wealthy residents from moving out of state.

But Ron Deutsch, executive director of the non-profit group New Yorkers For Fiscal Fairness, said the change amounts to a gift to the state’s richest residents.

"This is really about providing tax breaks to very wealthy families in New York State at a time when so many are suffering right now," Deutsch said.

"So many are paying large amounts of their income in property taxes," Deutsch said. "We thought that there could have been better forms of tax relief."

Ninety percent of New York’s estates will be tax-free when the changes are fully phased-in by the year 2019, according to the governor’s office.

The estate tax exemption in Massachusetts is $1 million. In Vermont, it is $2.75 million. Like New York, both states have a top rate of 16 percent. About 30 states have no estate tax.

Pierro, the estate tax planner, said most family farms and small businesses are not affected by the estate tax because they can be valued on a cash flow basis.

What could be taxed is the money you give to your loved ones before you die. Depending on the amount, that could trigger a gift tax.

For more information, visit the New York State Bar Association’s guide to the changes enacted in this year’s state budget.