If you’ve been fortunate to own an out-of-state vacation home – maybe in Florida, Vermont, Cape Cod or Maine, estate planning is essential if you’re a NY resident. Real estate is always probated or transferred pursuant to the laws of the state where located. This means when you pass away, if you own title to the property in your name alone, your executor will have to file for ancillary probate in the state where the property is located.
Having the property held in a trust is often a way to avoid probate in another state. But there still may be tax consequences of a transfer, both transfer taxes and estate taxes imposed by the state where the property is located. For 2020, the federal government has an estate tax exemption of $11.58 million, while New York’s estate tax exemption is currently $5.85 million. But owning a vacation home in Massachusetts or Maine may subject your estate to estate tax in that state, even though you are a NY resident. Careful planning is needed to understand what this can mean in your situation. Following is a summary of popular vacation home states and their estate tax consequences:
CONNECTICUT: For 2020, CT taxes estates that exceed $5.1 million. Real estate and personal property in CT are subject to the tax, even if owned by a non-resident of CT. If a New Yorker’s total estate exceeds the CT threshold exemption ($5.1 million), the part of the estate attributable to CT property will be taxed at a rate of 10-12%.
FLORIDA: FL does not have an estate or inheritance tax. However, if you are a non-US-citizen owning property in FL, you will be subject to income tax gains earned on the sale of the property under a law known as the Foreign Investment in Real Property Tax Act (FIRPTA).
MASSACHUSETTS: For 2020, MA taxes estates that exceed $1 million at a rate up to 16%. The estate tax is calculated by determining a person’s total estate, and then subjecting the part located in MA to a pro-rated amount. For example, let’s say a New Yorker’s estate is $1.5 million, and he owns a $400K vacation home in MA. The MA tax on a $1.5 million estate would be roughly $70K, and since the MA property accounts for 27% of the total estate, the tax due to MA would be $18,900 ($70K x .27). This tax is due to MA, even though there would be no NY or federal estate tax imposed.
MAINE: For 2020, ME taxes estates that exceed $5.8 million, and like MA, the estate tax is calculated by determining the person’s total taxable estate wherever located and then by multiplying that figure by the percentage of the non-resident decedent’s taxable estate located in Maine. ME estate tax rate is 8% on the amount between $5.8 million and $8.8 million; 10% on the amount between $8.8 million and $11.8 million; and 12% on the excess. Maine has a different way of taxing property owned in a pass through entity, which may save estate taxes.
If you own an out-of-state vacation home, make sure your estate planning considers the law of the state where the property is located. Why pay estate taxes if you don’t have to? Please contact us at firstname.lastname@example.org or (914) 923-1600 to get started today!