April 24, 2014
By Melissa A. Terranova
The State of New York has good news for those with estates larger than $1,000,000. As of April 1, 2014, New York more than doubled its estate tax exemption from $1,000,000 to $2,062,500. The exemption will continue to rise incrementally each year until it caps out in 2019 to match the Federal exemption amount. Before April 1, 2014, the amount an individual could leave at death without owing state estate tax in New York was $1 million. That meant you would pay New York estate tax on your assets above $1 million at a tax rate up to a 16%.
Below is a summary of the New York basic exclusion amounts for decedents passing on or after the following dates:
April 1, 2014 and before April 1, 2015 $2,062,500
April 1, 2015 and before April 1, 2016 $3,125,000
April 1, 2016 and before April 1, 2017 $4,187,500
April 1, 2017 and before January 1, 2019 $5,250,000
January 1, 2019 and beyond indexed and will match the Federal amount
The new law is clearly beneficial for those decedents whose assets are under the basic exclusion amount. However, there is a catch: if a decedent dies with assets more than 5% above the basic exclusion amount, his or her estate will be taxed on the full amount. If a decedent dies with assets in excess of the exclusion amount, the estate will lose the basic exclusion amount and any tax savings. For example, if a decedent dies on May 1, 2014 with assets of $2,170,000 (which barely exceeds the basic exclusion amount) the resulting New York estate tax bill will be $112,400 since the entire amount of $2,170,000 will be subject to tax.
An added wrinkle to the New York estate tax scheme is that most gifts made within three years of death will now be included in the decedent’s taxable estate and subject to New York estate tax. Gifts made prior to April 1, 2014 or after January 1, 2009, and gifts made by a person who is not a New York resident at the time of the gift, will not be subject to the new gift rules.
This article from Forbes discusses the new law and some of the issues with same.
Please give us a call if you have questions or would like some guidance on navigating your way through New York’s new estate tax law.