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Developments with the New York Estate Tax

We often discuss the importance for local families to account for the New York estate tax. Far more media coverage is given to the federal tax, and some local residents are under the mistaken assumption that the state law mirrors the federal. It currently does not. Even families who do not have asset to trigger the federal tax may still need to plan appropriately for the New York tax on estates.

However, if current plans are carried out, in a few years .there may be much more congruence between the state and federal rules. That is because earlier this month New York changed exemption levels for the estate tax. Previously, assets over $1 million were exposed to the tax at a 16% top rate. Now, however, the exemption level is raised to slightly more than $2 million ($2,062,500). Not only that, but that level is set to steadily increase or five years until, in 2019, the exemption level matches the federal exemption amount at that time (projected to be $5.9 million).

Important Provisions in the Estate Tax Law
There are other aspects to the new state rules that must be understood by local residents seeking to minimize their obligations and legally save on taxes. Some items to keep in mind:

***There is no “portability” as there is with the federal tax. This means that surviving spouses cannot use unused portions of their partner’s exemption amount to lower their burden.

***Under the law, all gifts made within a three year window will likely be included in the estate to calculate the tax burden (at least for gifts made starting this April and extending to 2019). Naturally, this means that one must act early to move assets in ways that take them out of the estate and lower its value.

***There is a risk of falling of the estate tax “cliff” during the phase-in which could mean those with assets just slightly over the exemption amount may face a tax on the full value of their estate. This issue is complex, but in a helpful comment letter the New York State Society of CPAs provides a more detailed analysis of how this may come about.

***The new law repeals the state’s generation-skipping transfer tax while also providing more relief for some surviving non-citizen spouses.

Contact our NY estate planning lawyers today for tailored guidance on how these rule changes affect your financial future.

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