On March 31, 2014, Governor Cuomo signed legislation that made important changes to the New York State estate and gift tax laws. In brief:
Estate Tax Exclusion Amount
Under the new law, effective April 1, 2014, the New York estate tax exclusion amount (which was formerly at $1 million) is increased incrementally until the state exclusion matches the federal estate tax exemption, as follows:
- For individuals dying on or after April 1, 2014 and before April 1, 2015, the exclusion amount will be $2,062,500;
- For individuals dying on or after April 1, 2015 and before April 1, 2016, the exclusion amount will be $3,125,000;
- For individuals dying on or after April 1, 2016 and before April 1, 2017, the exclusion amount will be $4,187,500; and
- For individuals dying on or after April 1, 2017 and before January 1, 2019, the exclusion amount will be $5,250,000.
The New York exclusion amount will be indexed for inflation beginning in 2019. The top New York estate tax rate remains 16%.
The Estate Tax “Cliff”
Beware of the estate tax cliff created under the new law. As of April 1, 2014, the benefit of New York’s estate tax exclusion amount is “phased out” for taxable estates between 100% and 105% of the state exclusion amount. As a result, if the decedent’s taxable estate exceeds the value of the New York exclusion amount by 5% or more, the entire taxable estate will be subject to New York estate tax (applied at graduated rates). To illustrate, a taxable estate of $5,250,000 will not be subject to a New York estate tax in 2019. However, a slightly larger estate of $5,512,500 (which is 105 percent of the applicable exclusion amount) would be subject to New York estate tax in excess of $430,000.
Lifetime Gifts and GST Tax
The new law also adds a limited 3-year “look back” period for gifts made between April 1, 2014 and January 1, 2019. The value of gifts made by a decedent within three years of death, if made between April 1, 2014 and January 1, 2019, will be added to the value of the decedent’s estate and may result in an estate tax on such gifts.
In addition, the state’s generation-skipping transfer (“GST”) tax has been repealed.
If you have any questions about how any of these changes may impact your existing estate planning documents, or you would like to discuss any estate planning issues, please contact us at (315) 769-3898.