Effective April 1, 2014, New York has adopted significant changes to its estate, generation-skipping, and trust income tax laws.
Estate and GST Tax
First, the good news: since its “decoupling” from the federal estate tax, the New York estate tax exemption (the amount that each New York resident can pass tax-free at death to beneficiaries other than a surviving spouse or charity) was $1,000,000. Under the new law, the exemption will rise steadily over four years: to $2,062,500 as of April 1, 2014; $3,125,000 as of April 1, 2015; $4,187,500 as of April 1, 2016; and $5,250,000 as of April 1, 2017, through December 31, 2018. Starting in 2019, the exemption will be recalculated every year based on inflation, using $5,000,000 as a base and 2010 as a reference point, so that thereafter the New York exemption amount will match the federal exemption.
However, there are two important ways in which the New York exemption will differ from the federal exemption. The federal exemption is available to every estate, regardless of size. The New York exemption, however, is eliminated for estates exceeding 105% of the exemption amount. (A reduced exemption is applied to estates valued at between 100% and 105% of the
full exemption amount.) This creates a tax “cliff.” In 2018, for example, estates valued at or under $5,250,000 will pay no New York estate tax, but estates valued at $5,512,500 or more will be taxed on every dollar in the estate – not just the value in excess of $5,250,000, as is the case with the federal estate tax. Thus, the new law actually increases New York estate taxes for decedents whose estates exceed the cliff amount: instead of the $1,000,000 exemption previously applicable, those decedents’ estates receive no New York estate tax exemption at all.
