New York Estate Tax Reform

Paula B. Ellenberg, CPA, CVA, MST and Patricia P. Greenhouse, CPA (Apr, 2014)

Question:  Is New York State still one of the worst states to reside upon death? 

AnswerYes, if you’re not looking ahead and continuing to be proactive in your estate planning.  There’s a cliff coming up.

The New York State legislature passed, and Governor Cuomo signed, the Executive Budget for 2014-2015.  The new law significantly alters New York’s estate tax and is meant to end the incentive to “move to die.”  While the law is good news for some, there is no incentive for the wealthy not to head for the warmer climates of Florida or Arizona.

New York is one of 15 states that impose an estate tax.  Prior to the enactment of the 2014-2015 Budget Bill, New York’s exemption ($1 million) was amongst the lowest while the estate tax rates were among the highest.  As of April 1, 2014, the New York threshold was raised from $1,000,000 to $2,062,500 and is set to increase over the next four years.  The basic threshold will equal the Federal basic threshold amount with annual indexing for those dying on or after January 1, 2019.  New York’s top estate tax rate remains at 16%.

 

Date of Death

New York Basic Exclusion Amount

After April 1, 2014 and before April 1, 2015

$ 2,062,500

After April 1, 2015 and before April 1, 2016

$ 3,125,000

After April 1, 2016 and before April 1, 2017

$ 4,187,500

After April 1, 2017 and January 1, 2019

$ 5,250,000

After January 1, 2019

Same as federal exemption amount (currently $5,340,000 but increasing for inflation each year)


The New Estate Cliff

Unfortunately, here’s where the millionaires line up to exit New York.  No New York basic exclusion amount will be available to estates valued at more than 105% of the New York basic exclusion amount.  New York estate tax will be imposed on the entire estate.  Those estates valued at more than 105% of the New York basic exclusion amount could pay the same tax as they would have under the prior law. 

For example, assume a person dies on June 1, 2014 with a taxable estate valued at $2,200,000.  The New York basic exclusion amount will be $2,062,500. Because the value of the estate exceeds 105% of the basic exclusion amount ($2,062,500 x 105% = $2,165,625), the estate will be subject to New York estate tax on the entire $2.2 million and would owe $114,800 in estate tax (based on current rates).  If the decedent’s estate had been $2 million, the estate would owe no New York estate tax because the basic exclusion amount would be applied.

Temporary Gift Tax Inclusion

New York has not imposed a gift tax since 1999.  Under the new law, taxable gifts (those greater than the annual exclusion amount, currently $14,000) made during the three years immediately preceding the date of death must now be added to the New York Gross Estate.   Gifts made prior to April 1, 2014 and made while a nonresident of the State of New York are not included.   This provision is set to expire on January 1, 2019.

Portability

The new law does not include a New York equivalent of the federal estate tax portability provisions.

Generation Skipping Tax

The Generation Skipping Tax has been repealed as of April 1, 2014.

Conclusion

The new law generates significant estate tax savings for those estates below the annual exclusion amounts.  However, since the new law also entirely eliminates the use of the New York basic exclusion amount by wealthy individuals, proactive and advanced estate planning is highly recommended for those estates in excess of the exemption amounts. 

Other provisions of the new law impacting trust reform will be addressed in upcoming Focus articles.  Please contact your Dermody, Burke & Brown tax advisor for additional information.

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