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New York Estate Tax Law Refunds and Future Tax Savings Offered by QTIP Trusts

In the New York Surrogate’s court ruling of the Evelyn Seiden (Hogan) estate, the 2014 taxation of marital trust rule was overturned to allow for refund on $530,000 in assets, Matter of Seiden (Hogan), 2018 NY Slip Op 32541 (U),. The estate argued that federal Internal Revenue Service (“IRS”) rule IRC § 2044 was inapplicable on grounds that the order of taxation on $530,000 held in her husband’s estate at tie of death in 2010, was invalid after transfer to his spouse. Since the Surrogate’s court decision in 2014, state law has considered the issue of family heirs’ rights to tax refunds and future savings on large estates.

 

QTIP Trust Tax Deferral

The Seiden estate case illustrates the flexibility of “Qualified Terminable Interest Property.” trusts for remaining spouses. New York estate law allows for spouses to take advantage of marital deduction in tax reporting. Under the current tax law, spouses control the distribution of estate assets at the death of a surviving spouse until their own death or incapacity. QTIP trusts allow for tax deferral, but not tax avoidance according to IRS and state rules.

 

Formation of a QTIP trust at the time of the first spouse’s death, protects estate assets for purpose of enriching the surviving spouse, while avoiding tax during their lifetime. At the time of a surviving spouse’s death, QTIP trust assets are transferred to a “second estate” in the interest of fulfilling will or last testamentary distribution instructions on behalf of living heirs and beneficiaries.

 

The Seiden estate matter exhibits the safe-haven value of QTIP trust planning. Taxation of non-spousal heirs and beneficiaries after the death of both spouses depends on the income tax bracket of those recipient’s, as well as any gift or other arrangement made prior to the death of the final decedent.

 

Future Refunds and Tax Savings

The preceding case ruling of Seiden has been met with some dissenting opinion by legal experts, citing that protection of large estates from taxation is a substantial risk to state revenues. New York State Department of Taxation and Finance (“DTF”) rules generally do not deviate in tax treatment of estate assets held in its jurisdiction from the federal IRS criteria. The Surrogate’s court, responsible for probate taxation of audited assets, has the authority to alter DTF decision. Beginning 2017, the federal estate tax threshold for individual estates was increased to $11.18 million. New York’s estate tax threshold for exemption currently stands at $5.25 million.

 

Contact a licensed New York estate law attorney specializing in trust planning to discuss formation of a tax-free QTIP trust.

 

Estate Law Attorney Practice

Ettinger Law Firm is a licensed New York attorney practice specializing in estate planning and probate litigation. Contact Ettinger Law Firm to schedule a consultation about an estate law taxation matter.      

See Related Blog Posts

New York DTF Valuation Standards and Estate, Part I: Valuation Standards

Qualified Terminable Interest Property Trust

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