When someone dies, they will usually have some leftover financial obligations for their loved ones or the executor of their estate to address. An executor has a responsibility to fulfill the remaining obligations of a deceased individual.
This responsibility applies to paying bills, settling debts and closing accounts. It also makes the executor responsible for handling certain taxes. Multiple taxes may apply to estates probated in New York.
Learning about these taxes can help ensure that the executor files all necessary paperwork and pays the appropriate taxes.
State and federal estate taxes
There is a tax that applies to the property passed from one generation to the next. Someone’s estate will have a responsibility to potentially pay both federal and New York state estate taxes if they leave behind enough assets.
Currently, the exemption threshold for New York state estate taxes is $5,930,000. The federal cut-off for estate taxes is almost twice that amount. Any estate worth more than the cutoff amount will have to pay state taxes, and the tax rate will increase with the value of the estate.
Income taxes for the testator
The deceased individual will likely still have some federal income tax obligations when they die. Even if they don’t have any taxes due and hadn’t filed a tax return for years due to a lack of income, it is important to file a final tax return so that the IRS knows the taxpayer has died.
Income taxes for the actual estate
Estate administration often involves the executor selling estate assets so that they can distribute the proceeds among the beneficiaries of the estate. Selling off personal property generates revenue and may result in income tax obligations.
If the sale of assets from the estate results in more than $600 in income, the executor will need to file an income tax return on behalf of the estate for that year. If finalizing the estate takes more than one year, it’s possible that the executor will have to file multiple years’ worth of income tax returns on behalf of the estate.
Failing to pay taxes can put an executor in a vulnerable position, as they have some personal financial responsibility for those obligations. Understanding probate requirements can help those tasked with estate administration limit liability and fulfill their responsibilities.