EPTL 2-1.8: Apportionment of Estate Taxes Among New York Beneficiaries

When a New York estate owes estate tax, someone has to bear the cost. Section 2-1.8 of the Estates, Powers and Trusts Law (EPTL) answers that question when the decedent did not answer it. The default rule is simple. Each person who receives taxable property bears a share of the tax in proportion to the value of what they receive. That applies whether the property passes under the will or outside it, as with life insurance, retirement accounts, jointly held assets, and trust property.

This page explains how the statute works, how a will or trust can change the result, and how disputes are resolved in Surrogate's Court. If you are trying to understand whether you owe income tax on what you inherited, that is a separate question, covered on our page about whether beneficiaries pay taxes on estate distributions in New York.

The Default Rule in Plain Language

EPTL 2-1.8 provides that estate tax paid by a fiduciary is to be equitably apportioned among the persons interested in the gross tax estate. The statute covers both the New York estate tax and the federal estate tax. Unless the decedent directed otherwise, the tax follows the property that generated it.

Three practical points follow from the statute:

• Proportional sharing: Each recipient of taxable property bears a share of the tax based on the value of their interest as a fraction of the taxable property.
• Deductions benefit the people who produce them: Property that qualifies for the marital deduction or the charitable deduction does not generate tax, so a surviving spouse or charity receiving that property generally bears no share of the tax on it.
• Temporary and remainder interests: When property is left in trust with an income interest followed by a remainder, the tax attributable to that property is generally charged against principal rather than split between the income beneficiary and the remainder beneficiary.

New York courts treat apportionment as the presumed result. A will or other instrument that shifts the burden must do so clearly. Ambiguous language is usually read in favor of the statutory rule.

When the Will or Trust Overrides the Statute

EPTL 2-1.8 yields to the decedent's own direction. Most professionally drafted wills contain a tax clause, and that clause usually controls. Common versions include:

• Pay all taxes from the residue: The residuary beneficiaries bear the entire tax, and specific bequests pass tax-free.
• Pay taxes on probate property only from the residue: Tax on non-probate assets, such as insurance or retirement accounts, is still apportioned to the people who receive them.
• Apportion all taxes: The will confirms the statutory rule.

The scope of the clause is where most disputes start. A direction to pay "all estate taxes" from the residue may or may not reach assets passing outside the will. Courts look at the exact wording and at whether the instrument expressly refers to non-testamentary property. A direction in a revocable trust may conflict with a direction in the will, and the fiduciaries then need to determine which instrument governs which assets.

Federal law also contains separate rights of recovery that interact with the New York rule. These include the executor's right to recover tax attributable to life insurance proceeds and to marital deduction (QTIP) trust property included in the estate. A tax clause can waive some of these rights, but only if it is drafted to do so.

Worked Example: Statutory Apportionment

Assume a decedent dies with no tax clause in the will. Ignoring expenses for simplicity, the gross tax estate of $10,000,000 passes as follows, and assume the combined estate tax due is $720,000.

The taxable property totals $8,000,000. The daughter receives half of it and bears half the tax. The son and niece each bear one quarter, even though their assets never passed through the probate estate. The executor pays the tax and then recovers the son's and niece's shares from them.

Same Facts, With a Residuary Tax Clause

Now assume the will says all estate taxes, including tax on property passing outside the will, are to be paid from the residue. The daughter's $4,000,000 residue now bears the full $720,000, leaving her $3,280,000. The son and niece take their full $2,000,000 each. The same family, with the same assets, ends up with a very different result because of one sentence in the will.

If the spouse or charity had been a residuary beneficiary, the calculation would become circular. Paying tax from the residue reduces the deductible share, which increases the tax, which reduces the residue again. Accountants solve this with an interrelated computation, and errors here are common.

New York Estate Tax Features That Affect Apportionment

The New York basic exclusion amount is indexed annually. For decedents dying in 2025, it is $7,160,000. New York also has a "cliff." If the taxable estate exceeds the exclusion by more than 5 percent, the exclusion phases out entirely and the whole taxable estate is subject to tax. Top New York rates reach 16 percent. Because the federal exemption is substantially higher, many New York estates owe only New York tax, but EPTL 2-1.8 apportions that tax in the same manner.

Both the New York return (Form ET-706) and any federal return (Form 706) are generally due nine months after the date of death. Extensions to file are available, but interest on unpaid tax runs from the original due date. Apportionment disputes do not delay the payment deadline.

Procedure in Surrogate's Court

Apportionment questions usually reach the court in one of two ways.

1. Judicial accounting: In a proceeding under SCPA Article 22, the executor or administrator sets out how the tax was paid and how it should be charged. Interested persons can object, and the Surrogate determines the correct allocation in the decree.
2. Separate proceeding: A fiduciary who has paid the tax can bring a proceeding to fix the apportionment and to direct a non-probate recipient to pay their share. A beneficiary who believes they were overcharged can also seek a determination.

Under EPTL 2-1.8, a fiduciary may withhold an apportioned share from property in the fiduciary's possession that would otherwise go to that person. When the property is held by someone else, such as an insurance beneficiary or the owner of an IRA rollover, the fiduciary may recover the share from that person. If a share proves uncollectible, the shortfall is generally spread among the other persons liable for the tax.

Common Pitfalls

• Distributing too early: An executor who distributes the residue before the tax is final may have no assets left to withhold against, and may face personal liability.
• Ignoring non-probate assets: Insurance and retirement account recipients often assume they owe nothing because the asset passed by beneficiary designation. Under the default rule, they usually owe a share.
• Delay in collecting: Recipients of non-probate assets may spend the funds. The fiduciary should send a written demand for the apportioned share promptly once the tax is computed.
• Conflicting instruments: A will and a revocable trust with inconsistent tax clauses invite litigation. Review all instruments together.
• Overlooking renunciations: A beneficiary who renounces under EPTL 2-1.11 changes who takes the property, which can change who bears the tax. A renunciation that shifts property to a surviving spouse may increase the marital deduction and reduce the tax for everyone.
• Trust principal versus income: Where a trust bears tax, the charge falls on principal. Trustees should consider how this affects later decisions, including any power to invade trust principal.

For background on what property counts as part of the probate estate versus the broader tax estate, see our overview of what an estate is. Albert Goodwin represents executors, trustees, and beneficiaries in estate tax apportionment matters before New York Surrogate's Courts.

You can contact the Law Offices of Albert Goodwin by phone at 212-233-1233 or by email at [email protected].