New York State: Is New York Now A 'Better Place to Die?'

The New York State budget bill, scheduled to be signed on April 1, contains good news for most New Yorkers. By making its estate tax less onerous, New York hopes to offset Forbes Magazine’s recent assessment of the Empire State as “a place not to die.”

Under the legislation, the estate tax exclusion, currently set at $1 million in New York, will increase to $5.25 million by 2017.  After 2019, the exclusion will increase to the same inflation-adjusted amount used to calculate the federal estate tax. Under this provision, 90% of New Yorkers won’t pay any estate tax.  However, because the new exclusion is not a threshold, but a cliff, it isn’t available to New Yorkers whose estates exceed the exclusion by more than 5%.

Also noteworthy is that taxable gifts made in the next five years will be “pulled back” into a decedent’s estate if the gifts were made within three years of death.  This provision is less stringent than a previous version of the bill, which would have pulled back all taxable gifts made after March 31, 2014.

Along with these estate tax changes, the new legislation also effectively shuts down two loopholes that enabled New Yorkers to create trusts that could be sheltered from New York income tax.  Specifically, incomplete gift nongrantor trusts (so-called “INGs”) will now be treated as taxable to the New York grantor, and the undistributed income of a New York resident exempt trust will now be taxable when distributed.
  
The proposed legislation is thus good news for New Yorkers whose estates will not exceed the new increased exclusion.   Nevertheless, wealthier New Yorkers will still need to pay careful attention to their planning, as the legislation really isn’t a game changer. 

Once the legislation is enacted, and as we complete 2013 returns, we will provide clients with additional information on these changes.   In the meantime, please do not hesitate to contact your EisnerAmper personal wealth advisor to discuss how this new legislation could affect you.