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New York Gift Tax Calculations May Change Soon

This week we discussed the growing belief among policymakers that estate tax changes are on the way for New York. Governor Cuomo proposed changing the exclusion rate for the NY estate tax up to the federal level ($5.25 million now and pegged to rise with inflation). This would be accompanied by a lowering of the top tax rate from 16% to 10%. Altogether, this represents a positive step for those hoping for a simpler, smaller estate tax bite.

However, less discussed are other changes that the Governor propose be included with the tax overhaul. Specifically, as noted in a Wealth Management story from last week, taxation on gifts will be folded into these total estate calculations. The gift issue is important, because it may lead some New York resident to alter their long-term strategies immediately.

Gift Taxes in New York
Under current state law, there is not a gift tax. However, under proposed changes, estate tax will need to be paid on all taxable gifts starting in April of this year. The story summarizes the concern succinctly:

“The new provision will cause any taxable gift made by a New York resident after March 31, 2014 to incur an additional net estate tax of anywhere from 6.5% to 12%.” This is only important, however, if the individual’s gross estate exceeds the exclusion amount.

In short, depending on your family’s specific situation, it may be prudent to make gifts now, before those gifts would be folded into the estate for tax purposes, to avoid an extra tax bite during this potential NY estate tax transition.

Tax and Planning Complexity
These gift and tax issues are quite complicated in even the best of cases, but they are made even more so when involving speculation about what might happen based on lawmaker preferences. Adding another layer of challenge is the fact that some legal issues related the the connection between state and federal estate taxes remain unclear.

For example, most assume that the tax connected to the potential New York taxable gift will be deductible from one’s federal gross estate–lowering that federal tax amount. However, there is technically no clarity on this exact issue, and many suggest that past precedent suggests that this may not be the case.

As even a cursory glance at these issues makes clear, it is critical not to handle these matters alone. New York estate planning attorneys, accountants, and financial advisors are here specifically to evaluate your situation, understand the legal details, and ensure you are best positioned to lower your tax burden and pass on as many assets as possible to loved ones.

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