Dying is now going to cost you in New York much less in estate tax if you can wait for five years. Why? The estate tax exemption for New York, which has been $1,000,000.00 since 1999, was greatly enlarged as part of the recently-enacted 2014 budget legislation. For persons dying in the period 4/1/14-3/31/15, a taxable estate of $2,062,500.00 pays no estate tax. This exemption is increased by $1,062,500 each April 1st until 2017, when the exemption will be $5,250,000. And for deaths on or after 1/1/19, the New York exemption will match the federal exemption, which is expected then to be about $6,000,000.00 and, like the federal exemption, will then be indexed for inflation. That's the good news!
Now the bad news. The new tax law has a "cliff" that results in the loss of the entire exemption from New York estate tax if the taxable estate (the gross value of all assets -- probate and non-probate -- less deductions) exceeds 105% of the exemption. For example, assume a death on 6/1/14. If the taxable estate is $2,062,500.00 or less, there is no estate tax. But if the taxable estate is $2,165,625.00 (105% of the exemption), then the New York estate tax is $112,050.00.
One of the stated purposes of updating New York's estate tax exemption was to discourage wealthier people from moving out of state. While the larger exemption provides welcome relief for some people, the complete loss of any exemption for others seems unfair and illogical.
As a practical matter, this change in the New York exemption means that people should do estate planning now to cover at least the next five years. As a general rule married persons should consider establishing a credit shelter trust in their Wills limited to the amount of the New York exemption in effect in the year of death, with the balance of assets passing to the surviving spouse tax-free or in a trust that qualifies for the marital deduction.
Please contact us if you would like further details about how these changes may affect you and your goals.