As previously reported on this blog, Governor Cuomo and the New York State legislature, both Assembly and Senate, were busy at work on the budget which contained modifications for the trusts and estates arena. A bill has finally been passed, which looks different from some of the earlier proposals. The new bill impacts the estate and trust world as follows:

Basic Estate Tax Exclusion Amount increases are to be phased in as follows for New York residents or non-residents owning real property located in New York State during the period listed:

  • April 1, 2014 – March 31, 2015 – $2,062,500;
  • April 1, 2015 – March 31, 2016 – $3,125,000;
  • April 1. 2016 – March 31, 2017 – $4,187,500;
  • April 1, 2017 – December 31, 2018 – $5,250,000;
  • January 1, 2019 and beyond, the basic annual exclusion amount corresponds with the Federal exemption ($5,000,000 indexed for inflation beginning in 2010).

Estate Tax Cliff

This is potentially the biggest danger to New York residents. There are cliff provisions in the law. A New Yorker who has a taxable estate which exceeds 105% of the basic exclusion amount will find his or her entire estate subject to New York State estate tax, not just the excess over the basic exclusion amount. So, for example, if you are a New Yorker and you die in 2018 with an estate of $5,512,000, your estate will taxed in its entirety not just the amount in excess of the $5,250,000 basic exclusion amount. New York State estate tax rates were not changed in the new bill, with the top rate remaining at 16%.

No New York State Estate Tax Portability

For Federal purposes, when the first spouse dies if he or she does not fully use his or her estate tax exemption, the balance can be added to the surviving spouse’s own exemption and used by such surviving spouse at his or her later death. That is not the case for New York estate tax; whereby any exemption not used by the first spouse to die in effect disappears.

Gift Add Back

Lifetime taxable gifts (in excess of the $14,000 annual exclusion per donee) made by a New Yorker during the 3 year period before his or her death to the extent such gifts are made between April 1, 2014 and December 31, 2018 are “added back” to the decedent’s estate.

No Separate New York State QTIP Election

QTIP elections for Federal and New York State purposes must be consistent. You cannot chose to make a QTIP election and claim a marital deduction for a trust for New York State estate tax purposes, if you have not made the same QTIP election for Federal estate tax purposes.  (Click here for a discussion of the federal estate/gift tax marital deductions, including QTIP elections)

Repeal of New York State GST Tax

New York State’s generation-skipping transfer tax has been repealed in its entirety.

Some dramatic changes have been made to the taxation of New Yorkers’ estates. The differences between Federal and New York State estate tax law make estate planning for New York residents challenging to say the least. If you are a New Yorker, make sure your estate planning documents achieve the tax results you desire.