In our last post, RAINBOW GETS ITS POT OF GOLD, we discussed the likely effect of New York’s new Marriage Equality Act on the state’s estate tax law as it applies to same-sex married couples. At the time the new law became effective on July 24, 2011, it was clear to us what its effect on the state’s estate tax law should be, but we have been awaiting a pronouncement by New York’s tax department to confirm our assessment. Our uncertainty was rooted in linkage between the New York’s estate tax law and federal estate tax law. At the federal level, a same-sex married couple is still denied certain rights, benefits, and protections because of the mandate of DOMA (Defense of Marriage Act).
On July 29, 2011, the New York State Department of Taxation and Finance issued guidance regarding the new law’s impact on, among other things, the state’s estate tax law. The Department made clear through its published guidance that New York’s estate tax law would be changed in order to fully comply with the new law notwithstanding its intertwined relationship with the federal estate tax law.
Following are the most significant points made by the Department regarding the new law and its effect on New York State estate tax law.
- Applicable Date. For New York State estate tax purposes, the new law applies to the estates of decedents who die on or after July 24, 2011.
- Computation of NYS Taxable Estate. The New York State taxable estate of a decedent in a same-sex marriage is computed as if the person were married for federal estate tax purposes (that is, in a different-sex marriage).
- Marital Deduction. An estate may claim a marital deduction for New York State estate tax purposes for property passing to a same-sex spouse to the same extent an estate tax marital deduction would be permitted at the federal level for property passing to a different-sex spouse.
- QTIP Election. An estate of a decedent in a same-sex marriage may make a qualified terminable interest property (QTIP) election for New York State estate tax purposes.
- Joint Property. Property owned jointly by a same-sex married couple is treated the same for New York State estate tax purposes as property owned jointly by a different-sex married couple.
- Gift Splitting. Same-sex married couples are permitted to split gifts to third parties made on or after July 24, 2011 for purposes of determining whether an estate meets the New York State estate tax filing threshold. (New York State does not have a gift tax but the amount of gifts made by an individual may affect whether a New York State estate tax return is required to be filed for his or her estate.)
- Required Filings. A pro forma federal estate tax return must be filed with the New York State Estate Tax Return for the estate of a decedent in a same-sex marriage. If the estate was required to file a federal estate tax return, the actual federal return must also be filed with the New York State Estate Tax Return. A pro forma federal gift tax return must be filed with the New York State Estate Tax Return if the same-sex married couple is splitting gifts for purposes of calculating the New York State estate tax filing threshold for the estate.
As you can see, the Department has been guided by one of the main purposes of the Marriage Equality Act – that both different-sex and same-sex marriages be treated equally under New York State law. This is true notwithstanding the state’s longstanding reliance on federal estate tax law as its starting point for taxation of decedents’ estates. The new law’s effect on the state’s estate tax law will confer significant benefits on same-sex married couples in New York. Whether similar benefits will be conferred to same-sex married couples at the federal level remains to be seen…