Stern Keiser Panken & Wohl LLP


2014-New York Tax Law Changes

Changes to New York State’s Estate, Gift and Trust Income Tax Laws

The good news is that on March 31, 2014, Governor Andrew Cuomo signed legislation that will increase the New York estate tax exclusion, over the next five years, to the Federal estate tax exemption. (Currently, the Federal exemption is $5,340,000 while New York’s exemption has been $1 million since 2001.)

Estate Tax. Under the new legislation, the New York estate tax exclusion increases in stages as follows:

Between these periods, the exclusion will be:

April 1, 2014 - April 1, 2015 = $2,062,500

April 1, 2015 - April 1, 2016 = $3,125,000

April 1, 2016 - April 1, 2017 = $4,187,500

April 1, 2017 - January 1, 2019 = $5,250,000

After January 1, 2019, the New York State exclusion, adjusted for inflation, will be equal to the Federal exemption amount. However, the new New York State law does not adopt the Federal rule of portability, nor does it permit a New York State-only QTIP election. The maximum tax bracket remains at 16%.

The not so good news is that the benefit of the exclusion is phased out for taxable estates between 100 percent and 105 percent of the New York exclusion amount and the benefit of the exclusion will be entirely lost for taxable estates 5% greater than the New York exclusion! As a result of this “cliff”, for an estate greater than 105% of the exclusion amount, the entire taxable estate will be subject to the New York estate tax. Read another way, if your New York estate is $2,062,500, your New York tax is zero. If your New York estate is $2,165,625 (5% or $103,125 greater), your New York tax is $112,050.

Gift Tax. The new law includes a 3-year look back period for certain gifts by New York residents made between April 1, 2014 and January 1, 2019. These gifts will be included in the decedent’s taxable estate in computing the New York estate tax. (And there is some question whether taxes on such gifts will be deductible for Federal estate tax purposes!)

Income Taxation of Trusts. The new law closes some perceived loopholes in trust taxation.

A new “throwback tax” is imposed on distributions to New York resident beneficiaries. This focuses on New York resident trusts which were not taxable in earlier years because no trustee was a New York resident, no property was located in New York and no income was derived from New York sources.

In addition, under the new law, incomplete gift non-grantor trusts (“ING” trusts), formed to avoid New York income tax on income and gains from property transferred to the trust, will be treated as grantor trusts for New York purposes.

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Given New York’s increasing exclusion over the next 5 years and the “cliff”, the 3-year look back for taxable gifts, and changes to New York’s income taxation of trusts, estate planning for those with taxable estates is likely to be complex. Many questions abound concerning the new tax legislation and, in fact, it is possible that wealthy New Yorkers may be worse off under the new law if their estate is greater than 105% of the New York exclusion. We urge you to consult us to consider how the new law affects your estate planning.