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Proposed Changes Set to Alter Estate and Gift Tax Structure in New York: Time to Make a Gift?

The budget bill proposed by Gov. Cuomo for 2014 includes changes to the gift and estate tax framework that New York residents should be aware of:

  • The New York estate tax exclusion amount, currently set at $1 million would increase to $5.25 million within the next five years, with Consumer Price Index adjustments annually thereafter. Additionally, the top estate tax rate would be reduced to 10% from the currently effective 16% rate.
  • Although there is currently no gift tax in New York, proposed changes to the gift tax law would require all taxable gifts (as defined for federal tax purposes) made after March 31, 2014 to be included as part of a decedent’s gross estate for purposes of calculating New York estate tax.

The net effect of the proposed changes is that the value of gifts made on or after April 1, 2014, will be recaptured for the purposes of calculating New York estate tax. In other words, any taxable gifts made after that date shall be included in the estate as though the property which was gifted is an estate asset. The effect of this recapture is an additional net estate tax of 6.5% to 12% on assets which exceed the then applicable New York estate tax exemption.

Although not yet enacted into law, the possibility of this additional net estate tax starting April 1, 2014 (or any subsequent effective date) should be considered by high net worth New York residents who still have all or a portion of their unified federal estate tax credit (currently $5.340 million) with which to make gifts. In larger estates, a properly structured gift made before the enactment of the law could result in significant estate tax savings.

For more information on the topic discussed, contact:

02.18.2014  |  PUBLICATION: Other Publications  |  TOPICS: Estate Planning, Tax

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