BEWARE OF NEW YORK'S INCREASED ESTATE TAX EXEMPTION
MANY HIDDEN TRAPS
WATCH OUT !!
The final New York budget bill passed on April 1, 2014 has many significant trusts and estates related provisions.
For wealthy clients, there is potentially an estate tax increase in spite of an increase in the New York estate tax exemption.
The New York estate tax exemption is set to increase gradually though 2019 to eventually match the federal exemption, which is currently $5,340,000. The New York State exemption amounts are as follows:
April 1, 2014 - $2,062,500
April 1, 2015 - $3,125,000
April 1, 2016 - $4,187,500
April 1, 2017 - $5,250,000
After January 1, 2019 the exemption will be indexed for inflation
The top New York estate tax rate remains at 16%.
In spite of the higher exemption, there is an estate tax "cliff". If a resident decedent's taxable estate exceeds the exemption amount by more than 5%,
the exemption is eliminated entirely. This means that your estate will be taxed on its full value, not just the amount over the exemption.
There is also a phase out of the exemption for estates exceeding the exemption by 5% or less. The following example provided by the New York State
Society of CPAs shows a 164% marginal tax rate. In 2017, a decedent with a New York taxable estate of $5,512,500 (which is 5% more than the exemption of $5.25 million),
would pay a New York estate tax of $430,050, whereas there would be no tax if the estate were worth $5,250,000. In effect, there is a $430,050 tax on the extra $262,500!!!
If Governor Cuomo believes this new law will stop residents from moving to Florida or another state with lower tax rates, he is sorely mistaken.
If your estate exceeds the exemption, it is very important that you consider estate planning to reduce your taxable estate below the threshold.
There is no portability provision as there would be under federal law. Under federal law, the unused estate tax exemption of the first spouse to die
can be transferred or "ported" to the surviving spouse. This cannot be done under New York law. Therefore, planning steps must be implemented
(including having proper Wills) to make sure the New York exemption of the first spouse to die is not wasted. In addition, a separate New York
QTIP election can only be made when a federal return is not "required to be filed". So even if a federal return is filed solely for purposes of
electing portability, a separate state QTIP election cannot be made. Therefore, creating an exemption trust at the death of the first spouse is still
necessary to make sure the New York State exemption of that spouse is not wasted. This is a better alternative than relying on a full marital deduction
on the death of the first spouse and taking advantage of portability.
New York has no gift tax. Under prior law, lifetime gifts were not subject to gift tax or included in the New York gross estate.
Under the new law, the gross estate of a resident decedent is increased by the amount of any taxable gifts made within 3 years of
death (and while a New York resident) provided such gifts (i) were made between April 1, 2014 and December 31, 2018 and (ii) are not
otherwise includible in the estate for federal estate tax purposes. This provision, which is intended to prevent deathbed gifts from
escaping New York estate taxation, may force many taxpayers to consider a change in residency to a state which does not have an estate tax.
Income Taxation of Certain Non-Grantor Trusts
Incomplete gift non-grantor (ING) trusts created by New York residents will be treated as grantor trusts for New York income tax purposes
and thereby subject to New York income tax. ING trusts that are liquidated before June 1, 2014 are excluded from these new provisions.
This provision is effective for tax years beginning January 1, 2014. Prior to the change in the law, many New York residents created ING trusts
outside of New York (e.g. in Delaware or Alaska) to avoid paying New York state/city income taxes. Now ING trusts will be treated as grantor
trusts for New York purposes resulting in the inclusion of all trust income on the grantorís New York personal income tax return.
The legislation also imposes an income tax on the undistributed net income accumulated by all other "exempt" resident trusts (i.e. completed gift non-grantor
trusts created by New York residents with no New York (i) Trustees, (ii) property or (iii) source income). In tax years beginning January 1, 2014,
such income will now be subject to New York income tax once distributed to New York resident beneficiaries. Such trusts will accordingly be subject
to return filing requirements when they make distributions to New York resident beneficiaries.
Immediate planning is essential for New York residents that have existing incomplete gift non-grantor trusts. As you can see, estate planning has just become
exceedingly more complicated. I urge you to schedule an appointment to review your existing plan. It likely needs updating to account for the new law.
The information in this e-mail message may be privileged, confidential, and protected from disclosure.
If you are not the intended recipient, any dissemination, distribution or copying is strictly prohibited.
If you think that you have received this e-mail message in error, please e-mail the sender and delete all copies.
As required by new U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S.
federal tax advice contained in this email, including attachments, is not intended or written to be used,
and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the
Internal Revenue Service.
If you have any questions regarding this matter or any other estate planning techniques, please contact a Maurice Kassimir & Associates, P.C. Trusts & Estates attorney or e-mail us:
Providing sophisticated estate planning to insure the accumulation, preservation and transfer of wealth for clients in the New York Metro area.