NYS estate and gift tax gets complex

NYS estate and gift tax gets complex

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By Nancy Burner, Esq.

The New York State estate tax exclusion amount will be increasing again as of April 1, 2016, to $4,187,500. This is an increase from the $3,125,000 exclusion amount that has been in effect since April 1, 2015. As of Jan. 1, 2016, the federal estate tax exclusion is $5,450,000.

The New York State estate tax exclusion will increase again on April 1, 2017, to $5,250,000. This exclusion amount will remain in effect until Dec. 31, 2018. On Jan. 1, 2019, the basic exclusion amount will be indexed for inflation annually and will be equal to the federal exclusion amount. The New York State and federal exclusion amount is estimated to be $5,900,000 in 2019.

An item still of particular concern to many is the “cliff” language contained in the law. If the estate is valued between 100 and 105 percent of the exclusion amount, the amount over the exclusion will be taxed. As of April 1, 2016, the 105 percent amount is $4,396,875. However, once an estate exceeds the exclusion amount by more than 5 percent, not just the amount in excess of the exclusion amount is taxed, but, rather, the entire estate is subject to estate tax.

Practically, this means that taxable estates greater than 105 percent of the exclusion amount receive no benefit from the exclusion amounts shown above and will pay the same tax that would have been paid under the prior estate tax law.

New York repealed its gift tax in 2000.  This meant that as a New York resident, if you made lifetime gifts to friends or family members, the gift was not taxed or included in your New York gross estate for purposes of calculating your estate tax. With the estate tax law as enacted in 2014, there is a limited three-year look-back period for gifts made between April 1, 2014, and Jan. 1, 2019. This means that if a New York resident dies within three years of making a taxable gift, the value of the gift will be included in the decedent’s estate for purposes of computing the New York estate tax. 

The following gifts are excluded from the three-year look-back: (1) gifts made when the decedent was not a New York resident; (2) gifts made by a New York resident before April 1, 2014; (3) gifts made by a New York resident on or after Jan. 1, 2019; and (4) gifts that are otherwise includible in the decedent’s estate under another provision of the federal estate tax law (that is, such gifts aren’t taxed twice).

For federal gift tax purposes, in 2016, you can still make annual gifts of $14,000 per person without having to report these gifts on a gift tax return. These $14,000 gifts are also not included for New York State estate tax purposes.

The New York State estate tax law does not contain a portability provision like in the federal estate tax law. Portability is a provision in the federal estate tax law that allows the unused estate tax exemption of a married taxpayer to carry over to his or her surviving spouse. Without portability, the manner in which a married couple holds title to their assets may continue to have a significant effect on the amount of New York State estate tax ultimately payable upon the survivors’ death.

This New York estate tax law is working to close, and eventually eliminate, the gap between the New York and federal estate tax exclusion amounts. For the next three years, however, as the exclusion amount increases and the three-year look-back for taxable gifts applies, tax planning will still be complex. That being said, it is important for anyone considering whether to make changes to their estate plans or gifting strategies to see an estate planning attorney specializing in these matters.

Nancy Burner, Esq. has practiced elder law and estate planning for 25 years.