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Inheriting in New York

When a loved one dies, whether expectedly or not, we find ourselves facing questions about that person’s final wishes. Outside the obvious funerary preparations, we also find ourselves having to disburse the deceased’s assets. Here at Urban Thier & Federer, we have a great deal of experience in assisting clients both in preparing wills and in helping heirs to inherit.  Inheritance can be a complicated process, but this article should serve to help you through it.

How does inheritance work in New York?

Inheriting in New York is a process that can be very simple, or it can be quite complicated. Generally, unless the estate in question qualifies as a Small Estate according to New York, a probate matter will be opened with the courts by filing the will and a petition for probate with the Surrogate’s Court in the county where the decedent lived. The court will issue Letters Testamentary to the executor of the will who will then file an inventory of the estate’s assets and pay the creditors and taxes associated with the estate. At this point, you will file a petition to close the probate matter and the court will issue an order to distribute the estate’s remaining assets to the beneficiaries.

While that is the process for a great many inheritance matters in New York, it is not always the case. For that reason, we recommend that you speak with an attorney regarding any inheritance or probate matter with which you may find yourself involved. Your New York attorney can discuss all the steps involved in an inheritance matter with you, but for your information we will be expounding on some of those steps in this article.

What is probate and how does it work?

Probate is the way in which a decedent’s estate is settled under the supervision of a court. The process is intentionally slow-moving so that the court can be certain that the estate is handled in a just manner. The purpose of probate is to freeze the estate until a decedent’s will can be found to be valid. Additionally, all the people who are relevant to the estate must be notified. The property and assets tied to the estate must be identified and appraised, and the creditors and taxes tied to the estate must be paid. Once all these steps have been completed, the estate can be closed and distributed to the beneficiaries. 

In order to make sure that these steps are followed, the court will appoint a person to be the executor or personal representative of the estate. This person can be selected in a couple of different ways. If the decedent has left behind a will dictating their final wishes, an executor is usually designated by that document. If, for whatever reason, the decedent did not prepare a will, then it is common for an attorney to be appointed as personal representative.

What taxes need to be paid?

One of the steps necessary for completing probate proceedings for an estate in New York is to pay the decedent’s final taxes. The IRS will require, in nearly all cases, that the decedent’s estate register for an Employer Identification Number. This number will act like a social security number for the estate and will be used in the creation of a bank or brokerage account which will track the interest gained by the estate before it is distributed to the estate’s beneficiaries. 

There are three main types of taxes that will need to be filed for the decedent and paid out of the estate’s assets. There are final individual federal and state income taxes, federal and state estate income taxes, and federal and state estate taxes.

Final individual federal and state income taxes are due by April 15thof the year following the decedent’s death. These taxes must be filed if the decedent earned more than the minimum amount of income necessary for filing income taxes in the calendar year of the death. This amount is set by federal and state law. If the decedent was married, their spouse can still file jointly for that year. You will use a Form 1040 to file these taxes.

In some instances, the decedent’s estate, through the executor, will also have to file federal estate income taxes. This income could come from things like rent, royalties, or interest income from savings account for the estate. The estate is a separate taxpayer than the decedent, so this will be filed using the EIN number for the estate.  These taxes are also due by April 15th.

The final tax that needs to be paid is the estate tax. The federal estate tax is due nine months after the date of the decedent’s death. Estates worth less than the exemption for $10 million are not required to file these federal taxes. Individual states are also capable of levying estate taxes, and New York does have one. However, that estate tax in New York has an exemption threshold of $5.25 million. So, if the estate is valued at less than that amount, this tax will not need to be filed either. If this tax does apply to your estate, the rate starts at 5% and increases to 16% and is applied to the entire estate if its value exceeds 105% of that $5.25 million exemption.

How to inherit in New York

Assets that you may be inheriting in New York will likely fall into one of a few different categories. Those may be bank accounts, vehicles, real estate, or retirement assets and life insurance policies.

Retirement assets such as IRA or 401(k) accounts are inherited by designated beneficiaries, and this cannot be changed by the details of a will. Once the beneficiary has been identified, they will want to determine whether or not the decedent was old enough to have begun taking out the required annual minimum distribution of the funds in the retirement account as this will determine when the beneficiary must start removing funds from the account. The withdrawal of funds can be done in a few different ways. The funds can be removed altogether immediately. They can be removed within five years of the decedent’s death. They may also be able to be removed over the beneficiary’s life expectancy. When assets are withdrawn from accounts such as these, the beneficiary will have to pay income taxes on the assets withdrawn.

Life insurance policies, like retirement asset accounts, are inherited by designated beneficiaries. Life insurance policies are required to have a primary and secondary beneficiary. When the policyholder dies, the death benefit goes to the primary beneficiary. If the primary beneficiary is deceased at the time of the death of the policyholder, the secondary beneficiary will receive the death benefit. If you are unsure whether the decedent had a life insurance policy, we can investigate with insurance companies on your behalf to find out.

Who inherits if there is no will?

When a person dies without a will, their assets pass into something called intestate succession. The rules of intestate succession operate almost like a computer program. The system is based on if/then statements to determine who receives what. Below are a few examples.

  • If a person dies with children but no spouse, then the children inherit everything.
  • If a person dies with a spouse but no descendants, then the spouse inherits everything.
  • If a person dies with a spouse and descendants, then the spouse receives the first $50,000 of the estate plus half of the remaining balance. The descendants get whatever is left.
  • If a person dies with parents but no spouse or descendants, then the parents inherit everything.
  • If a person dies with siblings but no spouse, descendants, or parents, then the siblings inherit everything.

As you can see, the process of inheriting in the state of New York can be an incredibly complex ordeal. At any step of the way if you feel that we at Urban Thier & Federer can be of any assistance to you, please contact us.

Next week read about Forming a Company in New York

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