New York is one of only a handful of states that have their own estate tax and the estate tax laws here remain some of the most complicated anywhere. Recent changes to the law will lessen the burden on many when it comes to estate taxes. However, the changes also create some new complications. Because of these recent changes, the basis for your existing estate plan may have changed, meaning that you should contact a New York City estate attorney to go over your plan and see if you need to modify it.
Until this year, New York charged an estate tax on any estate value over $1,000,000. This was a much lower threshold then the one under federal law and a lower threshold than the amount in the other states that have estate taxes. That resulted in more taxes.
For example, if someone died and had $1,250,000 in assets in their estate that would be subject to the New York estate law, the would have to pay a tax on the $250,000 that went over the exemption amount. The amount of the tax varies depending on a number of factors, but ranges between 5% and 16%.
There were changes that went into effect earlier this year that changed the exemption amount for those who died after April 1, 2014. The new law would mean that someone who died after that date now had an exemption amount of $2,062,500. This more than doubled the amount of the exemption amount in New York. Additionally, the exemption amount will be going up even more substantially over the next few years, so that by January 1, 2019, it matches the estimated federal exemption amount, which is over $5,000,000.
While the new law will now eliminate estate taxes for those between the old exemption amount and the new one, there are other changes which will, in effect make the amount of taxes more for some people. That is because of the way that the taxes are calculated being changed. With how the rules worked before, and how it works in every other state, if someone went over the exclusion amount, they were taxed on the amount that went over. For instance, if someone had an estate worth $1,100,000 and the estate was subject to a 5% tax, they were required to pay around $5,000 in estate taxes.
The law has changed now so that the entire estate amount will be taxed if someone is over the exclusion amount at all, something that the New York State Society of CPAs calls “a cliff”. This would significantly increase the amount of estate taxes for some, especially those who are only a little over the exemption amount, since now it is calculated completely different. For example, now if someone goes $100,000 over the exclusion amount, presently adding up to a total of $2,162,500, and has a tax burden of 5%, the would not owe $5,000 like before, but instead would owe $108,125, more than 20 times the amount of the tax before.
With a good New York City estate attorney, you may be able to plan your estate so that you can lessen the impact that these new tax laws will have when it comes to your estate. There are multiple options that may work for you.
If you would like a case evaluation, call us at (212) 233-1233.