This article is dealing with the 2020 New York Resident Estate Taxation. On December 22, 2017, the Tax Cuts and Jobs Act implemented substantial cuts to the estate tax.^[1] The main change, effective 2018, doubled the lifetime estate exclusion amount, which IRS clarified to be $11,180,000.^[2] In 2020, the inheritance tax exclusion amount will be adjusted for inflation and slightly higher.^[3] The NYS estate tax exemption is very different.

This is the new amount helps 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.^[4] Essentially, this tactic excludes nearly $22.4 Million from federal taxation. While this undoubtedly brings incremental wealth to many beneficiaries, New York residents should know that this does help with federal taxes but will not help with the 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.^[5] Alas, it was not to be. In 2020, the NYS estate tax exemption amount is set at $5.85 Million, adjusted for inflation.^[6] Thus, without the 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 the New York estate tax. Hence, there is no “easy” way to automatically double the excludable amount.

Second, and potentially more pejorative than the lack of portability, is what is known as the tax cliff. For example: in 2020, if your estate is $5.85 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.^[7]

To limit the liability of paying hundreds of thousands of dollars in the New York estate tax upon death, these harsh tax rules necessitate strategic estate planning. To maximize the inheritance for a loved one, a NY resident with a nest egg above $5.85 million estate tax exemption amount must act prior to death.

The first option is to simply 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 by utilizing such deductions as funeral and administrative expenses and marital and charitable contributions.^[8]

Yet, an estate’s value is hopefully increasing and is unpredictable. 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.^[9] 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 $5.85 million or so exemption, for a combined exemption of $11.7 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.

We at the Law Offices of Albert Goodwin are here for you. We have offices in New York, NY, Brooklyn, NY and Queens, NY. You can call us at 718-509-9774 or send us an email at attorneyalbertgoodwin@gmail.com.

[1] HR 1, 115th Cong (2017).

[2] 26 U.S.C. § 2010 (2018); Rev. Proc. 2018-18, 2018-10 I.R.B. 397 (2018).

[3] The Tax Cuts and Jobs Act also changed how inflation gets adjusted. It is now calculated based on the Chained Consumer Price Index. See HR 1, 115th Cong (2017).

[4] Frequently Asked Questions on Estate Taxes: How do I Elect Portability of the Deceased Spousal Unused Exclusion (DSUE) Amount to Benefit the Surviving Spouse?,IRS

[5] Erik Engquist, Could Congress, Trump Wipe Out New York’s Estate Tax?, CrainsN.Y.

[6] NY TAX § 952 (2018). Now, even inflation calculations will diverge for New York estate tax and Federal tax calculations. See supra, note 3.

[7] NY TAX § 952(c). The code gives partial tax credits when the exclusion amount is exceeded by up to 5%.

[8] Id.§ 955.

[9] 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.

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.^[1] The main change, effective 2018, doubled the lifetime estate exclusion amount, which IRS clarified to be $11,180,000.^[2] In 2019, the inheritance tax exclusion amount will be adjusted for inflation and slightly higher.^[3] 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.^[4] 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.^[5] 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.^[6] 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.^[7]

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.^[8]

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.^[9] 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.

[1] HR 1, 115th Cong (2017).

[2] 26 U.S.C. § 2010 (2018); Rev. Proc. 2018-18, 2018-10 I.R.B. 397 (2018).

[3] The Tax Cuts and Jobs Act also changed how inflation gets adjusted. It is now calculated based on the Chained Consumer Price Index. See HR 1, 115th Cong (2017).

[4] Frequently Asked Questions on Estate Taxes: How do I Elect Portability of the Deceased Spousal Unused Exclusion (DSUE) Amount to Benefit the Surviving Spouse?,IRS

[5] Erik Engquist, Could Congress, Trump Wipe Out New York’s Estate Tax?, CrainsN.Y.

[6] NY TAX § 952 (2018). Now, even inflation calculations will diverge for New York estate tax and Federal tax calculations. See supra, note 3.

[7] NY TAX § 952(c). The code gives partial tax credits when the exclusion amount is exceeded by up to 5%.

[8] Id.§ 955.

[9] 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.

This post looks at the New York State (NY) treatment of trusts and compares it to the tax treatment of an individual. The memo solely compares NY tax rates of individuals and of a trust, and does not analyze the Federal Tax Code. First, it is essential to understand which trusts are bound by NY tax laws. Section 605 of the New York Tax Code (Tax Code) defines the resident trust. The trust is considered a NY resident if (A) a domiciled decedent dies and the trust transfers via a will (testamentary trust); or (B) the trust grantor was domiciled in NY at the time the trust turned irrevocable (inter vivos trust). Due to constitutional concerns, there is an exemption from NY taxation if the connection ^[1] to New York of the resident trust is tenuous. Therefore, it may be beneficial in setting up an out-of-state trust or in some ^[2] cases “moving the administration and the trustees out of the State”.^[3] In the case of a NY Trust, the Tax Code treats a trust in the same way as resident unmarried individuals, married individuals filing separate returns, and estates. Compare the below charts for the 2019 tax year from Section 601 of the 4 Tax Code.^[5]

Based on the above chart, the tax rate of a NY resident trust is higher than those of married individuals filing jointly, surviving households, and of the resident heads of households. Moreover, a trust cannot take advantage of the state’s standard deductions as could individuals. Section 619 of the Tax Code, however, allows for some itemized deductions.^[6] Moreover, beyond the scope of this memo are potential additions or subtractions to the trust’s taxable income.^[7] In NY, trusts are seemingly taxed at a less-favorable rate. For example, a trust with $2MM in taxable income pays $155,833 in State taxes, compared to $135,466 that married individuals filing joint returns would pay. Thus, such tax consequences should be considered in the cost/benefit analysis when contemplating creating a NY trust.

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 your tax situation.

[1] Tax Law § 605(b)(3)(B)–(C).

[2] Id. § 605(b)(3)(D); See also Mercantile-Safe Deposit & Tr. Co. v. Murphy, 15 N.Y.2d 579, 581 (1964) (affirming lower court’s decision that that “the imposition of a tax in the State in which the beneficiaries of a trust reside, on securities in the possession of the trustee in another State, to the control or possession of which the beneficiaries have no present right, is in violation of the Fourteenth Amendment”).

[3] Eileen Caulfield Schwab & William P. LaPiana, The Income Taxation of New York Resident Trust, 68 N.Y. St. B. J. 30 (Mar./Apr. 1996).

[3] Tax Law § 601(c).

[4] Id. § 601(a)–(c).

[5] Id. § 619(b).

[6] Id. § 618.

The following tax rates are for individuals who died on or after April 1, 2016 and on or before March 31, 2017.

If you are looking for representation in court, in drafting and filing tax forms or to represent you before the state of New York in tax disputes, call New York estate lawyer Albert Goodwin, Esq. at (212) 233-1233.

New York estate taxes must be filed on Form ET -706 within 9 months after the decedent’s death, unless an extension has been given. The form can be found here. This is the filing deadline for New York estate taxes. 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.

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