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New York alters its estate tax exemption amount

New York has long been known for its high taxing policies. Prior to 2014, New York issued a tax on any estate valued at over $1 million which did not pass to a spouse. Since $1 million represents one of the lowest estate tax exemptions in the country combined with one of the highest income tax rates in the country, many New Yorkers were tempted to move out-of-state when considering where to spend their retirement years. Florida has been a popular destination.

In one of the most drastic changes to estate tax law in the state in recent memory, New York increased the New York estate tax exemption to over $2 million beginning on April 1, 2014. Under the new law the estate tax exemption will gradually increase to federal levels through 2019. Currently the federal estate tax is over $5,340,000 and is indexed for inflation.

Tax cliff

Of note is the fact that New York’s new law will create a “tax cliff.” For people under the exemption amount, the new law is hugely beneficial. However, if an estate exceeds the exemption amount by only 5 percent, then the entire estate is taxed. That means that if an estate is only $1,000 over the current exemption amount, the tax is $1,077 on the entire estate. If it is $100,000 over, then the tax is $109,729.50. For comparison, a New York resident would pay over $100,000 in tax on an estate valued at $2,165,000 in 2014; in Florida, an estate would have to be valued at over $5.5 million to receive a similar tax amount.

This means that many middle-class and upper-middle class New Yorkers may have to plan their estate carefully to avoid costing their heirs and beneficiaries thousands of dollars.

“Look back period”

New York does not have a gift tax. One way to reduce an estate and potentially eliminate taxes is to gift assets to relatives, friends and charities. There is a federal gift tax on assets valued at more than $14,000. Yearly gifts can be made up to that amount without becoming subject to taxation, up to the federal lifetime gift tax exemption.

Of course, gifting is only an option for those who know they will not need the money in the future. In addition, New York has a “look back” period, meaning that any gifts made three years prior to death will be included in the estate for tax purposes.

Other provisions

New York has also repealed its generation-skipping transfer tax, which is good news for certain people below the federal exemption amount. Noncitizen surviving spouses will also be able to take a marital deduction, a change in the law. Finally, New York does not have a portability provision, meaning that the unused estate tax exemption of a deceased spouse does not carry over to the surviving spouse.

While overall the new law is beneficial to many New Yorkers, the estate tax law remains complicated in New York and potentially costly. New Yorkers concerned about the estate tax should contact an experienced estate planning attorney to discuss their financial situation and legal options.

Whitlock Canter LLC has two attorneys licensed to practice in New York State and is fully conversant with New York tax laws. Although the firm does not maintain a physical office in New York State, some clients find it convenient and more cost effective to venture only 8 miles over the George Washington Bridge to our Paramus Office to meet with our estate planning attorneys. We are minutes away from the Garden State Plaza, which is famous for its shopping and for following New Jersey’s policy of not taxing clothing. Compared to Manhattan, our reduced overhead allows us to maintain competitive prices.