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Elder Planning Isn't Just For The Elderly

Finally Some Estate Tax Relief for New Yorkers

Fearing a continued exodus of affluent New Yorkers to states that do not impose a state estate tax, the State of New York has finally enacted significant changes to N.Y. Tax Law Section 952.

The most significant change is the increase in the basic exclusion amount for the imposition of New York estate taxes. Thus, for individuals dying on or after:

  • 4/1/14 and before 4/1/15 - $2,062,500 per person exclusion
  • 4/1/15 and before 4/1/16 - $3,125,000 per person exclusion
  • 4/1/16 and before 4/1/17 - $4,187,500 per person exclusion
  • 4/1/17 and before 1/1/19 - $5,250,000 per person exclusion

Clearly, the significant disparity that existed between the Federal estate and gift tax credit ($5.34 million per person for 2014) and the substantially smaller New York exclusion ($1 million per person) was a significant impetus for the enacted changes. It should be noted that after January 1, 2019, the basic exclusion amount will be indexed for inflation from 2010. This should allow the New York exclusion to be approximately equal to the federal amount.

Unfortunately, while Governor Cuomo and the State Legislature were in favor of increasing the basic exclusion amount, it appears that they believed that if the estate of the resident decedent (deceased individual) exceeded the basic exclusion amount by more than five percent, then the entire taxable estate should be subjected to a New York estate tax. With the top rate remaining at sixteen percent, this can result in significant New York estate taxes - especially during the period prior to the exclusion amount reaching $5.25 million on April 1, 2017.

Also important to note is that while under federal law the surviving spouse can utilize the unused federal exclusion of the decedent spouse ($5.34 million) pursuant to the "portability" provisions, no such "portability" provision exists under New York state law.

While there was discussion of a significant "add back" to the taxable estate for taxable gifts made, its application was significantly limited to a three year look back in the enacted legislation. As it now stands, the New York gross estate of a resident decedent will be increased by the amount of any taxable gift not otherwise included in the decedent's federal gross estate made during the three year period ending on his or her date of death. This does not include any gift made: (1) when the decedent was not a resident of New York state; (2) before April 1, 2014; or (3) on or after January 1, 2019.

While this "add back" regarding taxable gifts may succeed in generating additional estate tax revenue, it could also result in New Yorkers seeking non-resident status if they wish to avoid the estate tax and are interested in sheltering assets from the cost of long term care.

Clearly, the aforementioned changes to the New York estate tax are welcomed. However, whether in the long run they will have the intended effect of preventing New Yorkers from moving to tax friendlier states is something only time will tell. It is definitely a step in the right direction.

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