NY Estate Tax Reform: What it Means for You

The New York State Department of Taxation and Finance recently issued a Technical Memorandum to finalize 2015 legislative amendments to NY estate tax reform.

The provisions enacted in 2014 will be effective retroactive to April 1, 2015.

The basic NY estate tax reform: exclusion amount increases

In the Technical Memorandum, the Department of Taxation and Finance stated that the basic estate tax exclusion amount will increase on an escalating scale each year till January 1, 2019 until it corresponds with the federal estate tax exemption amount. These increases will be phased in for NY residents and non-residents who own, or who have owned, real property located within NY state retroactive to April 1, 2014.

Under the previous estate tax exclusion amount, estates with less than $1,000,000 were exempt from NY estate tax, well below the Federal exemption of $5,340,000. However with the new law, the NY exclusion amount has increased to $2,062,500, effective April 1, 2014 to March 31, 2015. Likewise, this exemption amount is set to increase to $3,125,000 from April 1, 2015 to March 31, 2016. The exclusion amount rises further from April 1, 2016 to March 31, 2017 to $4,187,500. However, the cut-off changes as the deadline will be from April 1, 2017 to December 31, 2018, although the exclusion amount will increase to $5,250,000. Finally, on January 1, 2019, the basic estate tax exclusion amount will correlate to the Federal exemption total of $5,340,000.

It is important to note that the Dept of Taxation and Finance set $5,000,000 to be indexed for inflation retroactive to 2010.

NY state clarifies that gifts eligible to be added back to descendent estate

For NY residents, taxable gifts they provide within three years prior to their death, with a tax exclusion threshold of $14,000 annually per donee, will be added back to the descendent’s estate. This applies to gifts made between April 1, 2014 and December 31, 2018. The Technical Memorandum also clarified that gifts composed of real and tangible personal property located outside NY state will not be added back to the gross estate of the descendent. Further, gifts are unable to be added back to the gross estate of the donor if he or she dies on or after January 1, 2019.

Federal deductions of intangible personal property for estates of non-residents not allowed

Finally, the Technical Memorandum stated that for non-residents who die on or after April 1, 2014, the computation of a New York taxable estate will not include any intangible personal property otherwise subject to taxation in the gross estate. The federal deduction for this intangible personal property will not be allowed in the computation of NY state estate tax for a non-resident. So for estate executors of a non-resident who died between April 2, 2014 and March 30, 2015, but filed an NY state estate tax return with the federal deduction, they will need to re-file an amended return.

Benefits of the new NY estate tax reform

The Department of Taxation and Finance emphasized that there will be no state estate tax imposed on a non-resident if the value of the real and tangible personal property in New York is under the $3,125,000 estate tax exemption threshold in the year of the individual’s death.

Thus, a New York resident would do well to make gifts of real and tangible personal property located outside New York state as a hedge against state tax imposed upon him or her before January 1, 2019.