Posted On: August 18th 2014
Schwartz Fang & Keating P.C. of New York is a team of attorneys that are proficient in estate tax, estate planning and probate law. We are happy to provide our clients with information regarding estate tax changes in New York State.
Governor Andrew Cuomo has recently signed legislation intended to reduce the estate tax incentives for New Yorkers to move out of the State, and to save estate taxes. While some New Yorkers will see some tax relief from the new law, the wealthiest New Yorkers will see little if any and in many situations will find themselves paying an increase in estate taxes under the new legislation. The Estate Tax changes came into effect on April 1, 2014. These changes have increased the need to hire a probate attorney.
Prior to the effective date, each individual had an exemption of $1,000,000 which protected an estate of that size from New York State Estate Tax. The new law increased the exemption to $2,062,500 as of April 1, 2014. Further, the exemption is slated to increase each April 1st until April 1, 2017 when it will reach $5,250,000. Then on January 1, 2019 and thereafter, the exemption will be the same as the Federal amount set by the IRS with inflation adjustments.
However, the new law contains what the Trust and Estates Bar refers to as a “Cliff Provision”. The exclusion is phased out for taxable estates between 100% and 105% of the applicable exclusion amount. Thus, New Yorkers whose estates exceed 105% of the exclusion amount will be fully taxed without an exclusion while estates equal to 100% or less of the exclusion will escape New York State Estate Taxes entirely. In 2018 an Estate of $5,250,000 will pay no estate taxes but an estate greater than $5,512,500 (105% of $5,250,000) will pay an estate tax on the full amount without any exemptions, thereby incurring hundreds of thousands of dollars of Estate Taxes. It is questionable if this legislation will be an inducement for wealthy New York Residents to stay north or seek Estate Tax Savings in a warmer southern climate.
In addition, this new legislation does not provide for portability. Under the current federal estate tax, the unused exemption of the first spouse to die may be carried forward and used by the surviving spouse. It was not necessary to have Wills provide for credit shelter trusts to be sure to get the benefit of two exclusions. Not so for the New York State Estate Tax which does not have portability. Wills should be reviewed to be sure that this Estate Tax plan provides for the use of two full New York State exemptions.
The new legislation also adds back to the New York Taxable Estate, taxable gifts made between April 1, 2014 and January 1, 2019, if they were made less than three years from the date of death. If one is contemplating making large gifts it might pay to make them as soon as possible to start the three year clock running or wait until January 1, 2019. Of course health issues could be a factor in accelerating the gift program.
In conclusion, we wish to point out that originally the Governor’s proposed legislation called for a reduction of the top Estate Tax Rate from 16% to 10%. This did not happen and the top tax rate remains at 16%.
Please contact us to discuss this further and see how this legislation may impact your estate planning.