Changes to New York Estate & Gift Tax

Some Good News (for a change!)

Until a few weeks ago, New Yorkers with a taxable estate of about a million dollars, would owe New York estate tax at rates rising to 16%.  However, as of April 1, 2014, New York estates can avoid tax on the first  $2,062,500, up from a base exclusion amount of $1 million per person, prior to April 1, 2014.

For many clients, with assets over $1 million, but below the federal exclusion (presently $5.34 million), the New York tax could add up. With the change, a tax break has been afforded which can save two hundred thousand dollars in New York estate taxes, for estates below the New York exclusion. However, once you are in a New York taxable position, the “graduation” is steep and so heftier taxes may be due.

With the law change, the New York State “base exclusion” will increase gradually over the next five years (until January 1, 2019) to $5.25 million. The $5.25 million base exclusion will approximate the current federal exclusion of $5.34 million – as indexed for inflation. The following chart shows the exemption increases:

Date of Death

NYS Estate Tax Basic Exclusion Amount

On or after April 1, 2014 and before April 1, 2015

$2,062,500

On or after April 1, 2015 and before April 1, 2016

$3,125,000

On or after April 1, 2016 and before April 1, 2017

$4,187,500

On or after April 1, 2017 and before April 1, 2018

$5,250,000

The New York State calculation for estate tax has been problematic in several respects and some caveats remain. For example:

  • Once you have a taxable estate which is 105% of the exclusion amount, the rate of taxes rises rapidly. The top bracket is 16%, for April 2014-2015 only!  Governor Cuomo’s bill had requested a permanent max of 10% but it seems the law as passed includes a top bracket of 16% for all but the present year.
  • While New York has not had a gift tax since the year 2000, gifts made within three years of death (if not otherwise includible in the federal gross estate) will now be included for New York State estate tax purposes. There are several caveats and planning pointers with this rule. For example, gifts of out of state property seem to get added back, and they did not previously.

With the new law change, the top estate tax rate for New Yorkers with a taxable estate, can include a 40% federal tax and an additional 16% of New York estate tax.  However, because estate taxes paid to New York State are deductible on the federal estate tax return, the top effective New York estate tax rate is 9.6%.

For most clients, sophisticated New York State estate tax planning has not been undertaken, because absent large gift giving programs, there was no effective way to reduce the tax. With the law change, for many New Yorkers, whose taxable estate will be below the New York exemption amounts, there will be valuable tax savings.