Recent Changes to New York's Estate Tax Laws

Recent Changes to New York's Estate Tax Laws


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

 

Exclusion Amount

 April 1, 2014 to March 31, 2015

 

$2,062,500

April 1, 2015 to March 31, 2016

 

$3,125,000

April 1, 2016 to March 31, 2017

 

$4,187,500

April 1, 2017 to December 31, 2018

 

$5,250,000

January 1, 2019 and Thereafter

Same as Federal

Exemption

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: 

  1. For a decedent with a taxable estate that is less than or equal to the exclusion amount, the credit is equal to the computed tax that would otherwise be due under the tax tables.  There is no estate tax as the credit washes out the computed tax. 
  2. For a decedent with a taxable estate that exceeds the exclusion amount by less than 105%, the credit begins to phase out causing an increasing tax as the size of the taxable estate approaches 105% of the exclusion amount.
  3. For a decedent with a taxable estate that equals or exceeds 105% of the exclusion amount (i.e. a taxable estate of $2,165,625 or more), no credit is allowed, which results in a complete phase out of the exclusion and the entire estate is taxed according to the tax tables.  

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. 

Portability

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.  

Conclusion

 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.

For more information about LexisNexis products and solutions, connect with us through our corporate site.