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By David R. Schoenhaar, Esq.*
Effective April 1, 2014, as part of the implementation of the 2014-2015 budget, the legislature and Governor Cuomo made significant changes to New York’s estate and trust income tax laws. According to Governor Cuomo, a key objective is to provide tax relief to New Yorkers and prevent them from migrating to states with more generous estate tax laws. This blog summarizes the key estate tax provisions of the new law.
Estate Tax Exclusion Increased
The most significant change implemented with the new law is the increase in New York’s basic exclusion amount. Prior to the new law, this amount had long been $1 million per decedent. As of April 1, 2014, the amount has more than doubled to $2,062,500 and is scheduled to increase over the next few years so that by January 1, 2019 it will equal the federal exemption amount (projected to be approximately $6 million). The chart below sets forth the scheduled increases:
Date of Death
April 1, 2014 to March 31, 2015
April 1, 2015 to March 31, 2016
April 1, 2016 to March 31, 2017
April 1, 2017 to December 31, 2018
January 1, 2019 and Thereafter
Same as Federal
This change is generally positive for New Yorkers and will result in many more estates being below the threshold which triggers an estate tax. However, for more wealthy New Yorkers, the exclusion rapidly phases out and results in a “tax cliff” as a taxable estate exceeds the exclusion amount at the time of death.
Applying the new law and assuming a date of death of January 1, 2015, when the exclusion is $2,062,500, there are essentially three scenarios that can apply to a New York decedent. They are as follows:
Gross Estate Expanded
With the passage of the new law, New York still does not impose a gift tax. However, the new law provides that certain lifetime gifts are included when computing a New York resident’s gross estate at death. These gifts consist of those made by the decedent: (i) when the decedent was a resident of New York, (ii) within three years of decedent’s death, and (iii) between April 1, 2014 and December 31, 2018. Accordingly, estate tax implications must now be considered when making lifetime gifts to reduce an estate below the New York exclusion amount.
Despite the significant changes to New York’s estate tax, the new law failed to implement portability which applies for federal estate tax purposes since 2011. In general, portability enables the estate of a surviving spouse to utilize the unused estate tax exemption of the first spouse’s estate. Since this is not available in New York, it continues to be important for New York spouses to balance their estates and to pass assets to each other utilizing a credit shelter or bypass trust.
Given these significant tax changes, New Yorkers should consult with their estate planning attorney and accountant to determine how the new law affects their estate planning.
*David R. Schoenhaar, Esq., is a senior associate at Ruskin Moscou Faltischek, P.C. and is a member of the firm’s Trust and Estates Planning and Litigation Department.
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