Ronald Fatoullah & Associates - Elder Law

Understanding NY's Estate Tax Exemption Increase


New York State recently increased its estate tax exemption.

Effective April 1st of 2014, a person residing in New York State can pass $2,062,500 free of any estate taxation. There has been talk of this increase for quite some time, but it has finally become a reality. The exemption is set to rise gradually each year so that by 2019, it will be on par with the federal estate tax exemption, which is projected to be approximately $5.9 million at that point.

The good news is that people will now be able to pass more to their heirs free of taxation, but there are certain provisions in the law that taxpayers must be wary of.

Prior to April 1st of this year, New York State residents could pass $1 million without any estate taxation. This meant that an estate tax would be imposed on any assets in excess of $1 million.

As of April 1st, 2014, the exemption amount rose to $2,062,500. That shields many more people from the estate tax. However, if an individual dies with just 5% more than $2,062,500, the resulting tax could be hefty. This means that a New York estate is taxed on its full value, not just the amount over the exemption amount. The potential of a large tax being imposed, even if the overage is not considerable, is being referred to as the "cliff."

Case Study:

In its comment letter on the proposed law, the New York State Society of CPAs provided an example that illustrates just how steep the tax could be.

In 2017 and 2018, the estate tax exemption will increase to $5.25 million. At such time, if an individual dies with a New York estate tax of $5,512,500 (5% more than the exemption), his estate would owe a New York estate tax of $430,050. In effect, there would be a New York estate tax of $430,050 on the extra $262,500.

It is not clear if this was the intended result of the legislation, but the numbers speak for themselves.

The new legislation does not impose a New York State gift tax; however, any gift made by an individual within 3 years of his death will be brought back into the estate for purposes of computing the tax.

Furthermore, the portability rules that allow a surviving spouse to use the predeceased spouse's estate tax credit for federal purposes are not present under New York State's changes.

Accordingly, married couples will still have to engage in estate planning that includes trusts that shelter each spouse's exemption.

While the increased exemption is ultimately good news, New York residents must still be cautious regarding their estate planning, and make sure their documents comport with the new changes.

Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that exclusively concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Mr. Fatoullah is also the co-founder of JR Wealth Associates. The law firm has offices in Forest Hills, Great Neck, Manhattan, Brooklyn, and Cedarhurst, NY. This article was written with the assistance of Debby Rosenfeld, Esq., a senior staff attorney at the firm. Ronald Fatoullah & Associates can be reached by calling (718) 261-1700, 516-466-4422, or toll free at 1-877-ELDER-LAW or 1-877-ESTATES.

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