New Changes to the New York State Estate Taxation
On March 31, 2014, Governor Cuomo signed legislation implementing the state budget for fiscal 2014-2015 year. This new legislation drastically changes the New York State (“NYS”) estate tax laws. Below is a summary of the major changes.
Prior to April 1, 2014, New York had an estate tax exclusion of $1,000,000 and taxed estates that were over $1,000,000, at progressive rates, with the top rate being 16%. The new law increased that exclusion to $2,062,500 for decedent’s dying after April 1, 2014 and before April 1, 2015, with an increase each year after that until it reaches the federal exclusion. For decedents dying after January 1, 2019, the exclusion amount will be equivalent to the then federal exclusion amount which increases every year due to inflation. It is estimated that for decedents dying after January 1, 2019, the exclusion amount, both federal and NYS, will be approximately $5,900,000.
A couple of twists to consider with the new law. Gifts that were made by the decedent within three years of death are added back to compute the taxable estate for NYS estate tax purposes, except for gifts that were made when (1) the decent was not a resident of NYS, (2) before April 1, 2014, or (3) after January 1, 2019. Transfers to surviving non-citizen spouses are now NYS estate tax-free without the requirement of a qualified domestic trust (QDOT) if a federal estate tax return is not required to be filed. The ever dreaded Generating Skipping Transfer (GST) Tax is repealed in NYS, but continues to exist under the federal tax system.
But here’s the shocker! The benefit of the NYS estate tax exclusion is phased out for taxable estates between 100% and 105% of the exclusion amount. Once the taxable estate is greater than 105% of the exclusion amount, no exclusion is allowed! The entire taxable estate will be subject to the NYS estate tax, at progressive rates (see the enclosed reference card for progressive rates). The old law afforded the $1,000,000 exclusion to all estates; the new law throws the large estates off the Estate Tax Cliff.
The intent behind the new law was to keep wealthy New Yorkers from fleeing NYS due to the high NYS estate tax. Although the new law eliminates the NYS estate tax on middle class New Yorkers (taxable estates up to 105% of the exclusion amount), it actually increases the estate tax on wealthy New Yorkers (taxable estates over 105% of the exclusion amount). For example, consider an estate of the decedent who passes away on June 15, 2018 with an estate of 5,250,000 which is equivalent the exemption amount. There is no NYS estate tax (and no federal estate tax either). Now consider the same decedent passing away with $5,512,501, which is $1 more that 105% of the exclusion amount, and only $262,501 more than the amount that escapes NYS estate tax altogether. However, the $5,512,501 estate is now subject to $452,300 of NYS estate tax. So think about this: extra $262,501 causes a tax of $452,300. That’s the marginal tax rate of over 172%. There are also scenarios where the marginal estate tax rate can be as high as 252%. The new law definitely does not achieve its objective of keeping the wealthy from fleeing NYS. It does, however, offer estate tax relief to moderate estates (under the exclusion amount).
The new law also makes various changes to income taxation of exempt resident trusts and incomplete gift, non-grantor trusts (known as ING trusts).
If you have any questions on these new tax law changes or any questions pertaining to Wills, Trusts and Estates, Estate Planning, Estate Probate and Administration, Asset Protection, Elder Law, Tax Law, Succession Planning, Special Needs Planning, Medicaid Planning and/or Estate and Trust Litigation, please feel free to call our office at 718-975-4600.
Prior to April 1, 2014, New York had an estate tax exclusion of $1,000,000 and taxed estates that were over $1,000,000, at progressive rates, with the top rate being 16%. The new law increased that exclusion to $2,062,500 for decedent’s dying after April 1, 2014 and before April 1, 2015, with an increase each year after that until it reaches the federal exclusion. For decedents dying after January 1, 2019, the exclusion amount will be equivalent to the then federal exclusion amount which increases every year due to inflation. It is estimated that for decedents dying after January 1, 2019, the exclusion amount, both federal and NYS, will be approximately $5,900,000.
A couple of twists to consider with the new law. Gifts that were made by the decedent within three years of death are added back to compute the taxable estate for NYS estate tax purposes, except for gifts that were made when (1) the decent was not a resident of NYS, (2) before April 1, 2014, or (3) after January 1, 2019. Transfers to surviving non-citizen spouses are now NYS estate tax-free without the requirement of a qualified domestic trust (QDOT) if a federal estate tax return is not required to be filed. The ever dreaded Generating Skipping Transfer (GST) Tax is repealed in NYS, but continues to exist under the federal tax system.
But here’s the shocker! The benefit of the NYS estate tax exclusion is phased out for taxable estates between 100% and 105% of the exclusion amount. Once the taxable estate is greater than 105% of the exclusion amount, no exclusion is allowed! The entire taxable estate will be subject to the NYS estate tax, at progressive rates (see the enclosed reference card for progressive rates). The old law afforded the $1,000,000 exclusion to all estates; the new law throws the large estates off the Estate Tax Cliff.
The intent behind the new law was to keep wealthy New Yorkers from fleeing NYS due to the high NYS estate tax. Although the new law eliminates the NYS estate tax on middle class New Yorkers (taxable estates up to 105% of the exclusion amount), it actually increases the estate tax on wealthy New Yorkers (taxable estates over 105% of the exclusion amount). For example, consider an estate of the decedent who passes away on June 15, 2018 with an estate of 5,250,000 which is equivalent the exemption amount. There is no NYS estate tax (and no federal estate tax either). Now consider the same decedent passing away with $5,512,501, which is $1 more that 105% of the exclusion amount, and only $262,501 more than the amount that escapes NYS estate tax altogether. However, the $5,512,501 estate is now subject to $452,300 of NYS estate tax. So think about this: extra $262,501 causes a tax of $452,300. That’s the marginal tax rate of over 172%. There are also scenarios where the marginal estate tax rate can be as high as 252%. The new law definitely does not achieve its objective of keeping the wealthy from fleeing NYS. It does, however, offer estate tax relief to moderate estates (under the exclusion amount).
The new law also makes various changes to income taxation of exempt resident trusts and incomplete gift, non-grantor trusts (known as ING trusts).
If you have any questions on these new tax law changes or any questions pertaining to Wills, Trusts and Estates, Estate Planning, Estate Probate and Administration, Asset Protection, Elder Law, Tax Law, Succession Planning, Special Needs Planning, Medicaid Planning and/or Estate and Trust Litigation, please feel free to call our office at 718-975-4600.