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Planning for the New York Estate Tax

The State of New York’s estate tax does not mirror the federal estate tax regime in many ways. A lack of careful planning may result in a New York estate tax liability even where the estate is not taxed at the federal level.

New York’s Estate Tax

New York’s estate tax, like its federal counterpart, is a tax levied on the value of the decedent’s estate upon death, and before distribution. New York’s estate tax parallels the federal estate tax with some exceptions.

What is Taxable?

Persons owning real and tangible personal property located in New York are subject to New York’s estate tax. At a high level, the equation is straightforward, taking the gross estate, less deductions, then applicable credits and exemptions.

Your Gross Estate

Generally, your gross estate under New York law will mirror that under federal law, which includes all property, probate and nonprobate, owned at the time of death. If you are a resident of New York, your gross estate does not include real and tangible property outside the State of New York. If you are not a resident of New York, your gross estate includes real and tangible property located in New York. For nonresidents of New York, intangible property is only included in the gross estate if it is used in connection with a business in the state. Your gross estate is valued at the time of death, unless your personal representative elects the alternate valuation date, which is six months later.

Deductions

Your taxable estate is determined by reducing the gross estate by allowable deductions. Common deductions include funeral and estate expenses, charitable donations, the marital deduction, Q-Tip trusts, and certain family-owned business interests. The estate tax is calculated based on the taxable estate. New York estate tax rates range from 3% to 16% based on the value of the estate.

Exclusions

At the federal level, no estate tax is due for estates below the exclusion amount, $5,430,000 in 2015. New York’s exclusions do not currently parallel the federal estate tax exclusion amounts. For 2015, the basic exclusion amount in New York is $3,125,000. If the taxable estate is less than the exclusion amount, no estate tax is due. It is important to note that unlike the federal estate tax, there is no portability of unused exclusion amounts. Generally, if your estate is valued at more than 105% of the basic exclusion amount, no exclusion applies.

Estate Tax Planning
With the help of a New York estate and trust attorney, you can effectively plan for the impact of New York’s estate tax. Common techniques aimed at reducing or eliminating an estate tax burden include a gifting strategy to reduce the taxable estate, implementing life insurance trusts, utilizing charitable deductions, and structuring trusts to capture the allowable exclusions.

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