This article is dealing with 2018 and 2019 New York Resident Estate Taxation. On December 22, 2017, the Tax Cuts and Jobs Act implemented substantial cuts to the estate tax. The main change, effective 2018, doubled the lifetime estate exclusion amount, which IRS clarified to be $11,180,000. In 2019, the inheritance tax exclusion amount will be adjusted for inflation and slightly higher. The NYS estate tax exemption is very different.
This exclusion amount can help many people avoid the estate tax, which can be as high as 40% on amounts over $11,180,000. Further, married couples can utilize what is known as the “portability” option to effectively double this amount. After the first spouse dies, the estate’s executor would elect portability on Form 4768 to pass any amount up to $11,180.000, inclusive of prior gifts, to the surviving spouse. Essentially, this tactic excludes nearly $22.4 million from federal taxation. This exclusion brings incremental wealth to many beneficiaries. New York residents should know that this exclusion works for federal taxes but will not help with New York inheritance tax.
New York is one of a handful of states that still taxes inheritance. In 2014, Gov. Cuomo led an estate tax reform in New York. With the idea of eventually matching Federal tax rates, the state legislature fixed death tax rates through 2018 and thought to match the federal rates as of 2019. Alas, it was not to be. In 2018, the basic NYS estate tax exemption amount is $5 million and starting 2019, the NYS estate tax exemption amount will be set at $5.25 million, adjusted for inflation. Thus, without New York legislature intervention, there is a large taxation discrepancy between New York estate tax rates and Federal estate tax rates.
Beyond the amount, New York has two additional rules unfavorable to estates when compared to the Federal code.
First, the ability for surviving spouses to check a box and claim a portability option does not exist for New York estate tax. Hence, there is no “easy” way to double the excludable amount automatically.
Second, and potentially more derogatory than the lack of portability, is what is known as the tax cliff. For example: in 2018, if your estate is $5.25 million, no taxes are due. Anything higher than 5% above that number, however, and your beneficiaries are paying taxes up to 16% in New York estate tax on the entire amount of the estate.
These harsh tax rules necessitate strategic estate planning. You will need to limit the liability of paying hundreds of thousands of dollars in New York estate tax upon death. To maximize the inheritance for a loved one, a NY resident with a nest egg above $5.25 million estate tax exemption amount must act prior to death.
The first option is to move. Sunny Florida with no personal or inheritance tax is always a popular retirement destination.
If moving is not an option, and the amount only slightly exceeds the threshold, an accountant could possibly move you from the edge of the cliff. They can utilize such deductions as funeral and administrative expenses and marital and charitable contributions.
An estate’s value is hopefully increasing. Relying on tax deductions ex-post-facto is not prudent.
Instead, a competent lawyer will utilize various New York estate tax saving strategies such as credit shelter trusts. Placing assets in such trust negates the harsh non-portability rule in New York. A credit shelter trust would allow both you and your spouse to keep the full $5.25 million or so exemption, for a combined exemption of $10.5 million. For many couples, this would be enough to ensure that the entire inheritance is distributed to the intended beneficiaries, and not to the NY State coffers.
Call the Law Offices of Albert Goodwin at (212) 233-1233, New York estate, guardianship, wills, trust, Medicaid and probate lawyer, and make an appointment to discuss the estate tax.
 Id.§ 955.
 Depending on an individual’s situation, some other trusts may be more appropriate for New York estate tax savings, such as a disclaimer or a QTIP-election trust.
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