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New York Estate Tax “Cliff” Might Be Leveled

Posted on: July 28th, 2015
new york estate taxIn the spring of 2014, legislators in New York passed new tax rules that created an estate tax “cliff.” Estates affected by the new rules are required to pay an estate tax on the entire gross estate value if the estate is valued at more than 5% of the state exemption, rather than pay tax only on the portion that exceeds the state exclusion. In the spring of 2015, Assembly Bill 6419 was introduced and proposes elimination of the “cliff.” 

The estate tax “cliff” made New York’s tax environment unfavorable to aging residents who are increasingly concerned that their lifetime accumulation of wealth could be compromised by taxes instead of passing their legacy on to family. Although no definitive evidence can be referenced, it is likely that the disadvantageous tax requirements are contributing to the growing number of New Yorkers relocating out-of-state. Otherwise, serious tax planning is paramount for life-long residents and individuals maintaining assets in New York.

The New York City Bar Association prepared a report on New York estate tax reform here. The report includes several proposals that might influence how lawmakers proceed. Pending changes include:
  • Applying the same tax credit to estates in excess of the basic exclusion amount as would be applied to estates that equal the exclusion amount.
  • Minimizing the tax benefit on a sliding scale. Current law provides that estates 100%-105% of the exclusion amount must be taxed in their entirety. The revision might open the window of 100%-105% to a greater range.
  • Addressing an ambiguity in requirements for Qualified Terminable Interest Property (QTIP) election. In the NYCBA’s report above, suggested terms are included to help prevent tax penalties that an executor might be responsible for as the language currently stands.
  • Clarifying the addback provisions. A three-year look-back provision for decedents who die before January 1, 2019 includes all gifts made for the three years prior to the date of the death. Some lifetime taxable gifts might be deductible under federal guidelines, and the NYCBA requests clearer terms on these matters.
  • Expanding portability. New York State tax law does not presently permit a surviving spouse to elect portability of their deceased spouse’s unused exclusion amount. Proposed terms suggest that New York allows portability and matches federal portability rules if doing so.

Individuals who have not updated their estate plans with regard to New York’s tax changes over the past year should schedule a review with their estate planning or tax attorney. For updates on New York tax legislation changes, follow our Manhattan tax attorneys on Twitter and Facebook.

By Attorney Samantha Reichle
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