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What Taxes are Involved in Administering the New York Estate?

24 September 2011 5 Comments

Administering the New York Estate

It is the executor’s or administrator’s duty to file the following tax returns on behalf of the decedent and/or the estate:

1. Final personal income tax returns for the decedent: The personal representative must file the appropriate final income tax returns for the decedent for the year of death and any returns not filed for preceding years. If the decedent left a surviving spouse, the executor or administrator and the surviving spouse generally can file a joint return for the decedent and the surviving spouse.

2. Federal and State Fiduciary Income Tax Returns for the estate: Generally speaking, any income generated on a decedent’s assets (such as interest, dividends, rentals, capital gains and losses) after the date of death is required to be reported on a federal and state fiduciary income tax return for the estate. When an individual dies, their estate becomes a separate entity for taxation purposes. It exists until the final distribution of its assets to the beneficiaries. The fiduciary income tax returns are required to be filed when the estate generates $600 or more of gross income during a tax year. On the returns, the estate is allowed an annual exemption deduction of $600 in figuring its taxable income. In addition, the expenses of administering an estate, such as attorney fees and fiduciary commissions, can be deducted on the return.

3. Federal (United States) and State Estate Tax Returns: It is necessary to file a Federal estate tax return for the estate of every U.S. citizen or resident whose “gross estate” plus adjusted taxable gifts made during the decedent’s lifetime, is more than $5.49 million (for deaths in 2017). Note that in order to “port” the exemption of the first spouse to the second spouse (which makes available approximately $10,980,000 in assets to be exempt from federal estate tax), a federal estate tax return for the estate of the first deceased spouse must be filed, even if that estate is too small to require filing otherwise.

Each state has its own Estate Tax law. Currently, for New York State residents dying after March 31, 2017, it is necessary to file a New York State estate tax return if the total “gross estate” plus adjusted taxable gifts made during the decedent’s lifetime, exceeds $5.25 million.

The gross estate of a decedent include both the probate assets owned individually by the decedent, in addition to the non-probate assets, such as assets owned jointly by the decedent and another individual, assets payable to a named beneficiary, etc. Also included are any gifts or transfers made during the decedent’s lifetime for which a gift tax return was required to be filed. Currently, an individual can gift or transfer up to $14,000 each to any number of individuals per taxable year without any gift tax consequences.

Due to the complexities involved, an executor or administrator should not attempt to draft the necessary returns, compute the taxes due nor meet the necessary filing requirements without the supervision and guidance of a lawyer.

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Lawrence J. Peck, Esq.
Founder of the Estate Planning New York Group
Manhattan, New York City

P.S. Click here for access to the 26 Most Common Estate Planning Mistakes.


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