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New York estate tax reforms may affect your estate plan

Changes to New York laws relating to the estate tax exemption took effect April 1, 2014. That makes this a good time for New Yorkers to review their estate plan and do some forward-looking tax planning. The new law may make estate planning more complex for some residents.

Under the prior law, the first $1 million of an estate’s value was exempt from New York state estate taxes. The state tax rate ranges from 5.6 percent to 16 percent, with higher rates charged on larger estates. Under the new law, the exemption is immediately raised to over $2 million. The exemption will go up each year for the next several years, until the state tax exemption matches the federal exemption. Currently, estates valued at $5,340,000 or less are exempt from federal estate taxes. Federal estate tax can be as high as 40 percent.

One pitfall of the new law, which tax planners sometimes refer to as a tax cliff, is that estates worth more than 5 percent above the exemption amount are taxed on their full value. This can lead to hefty tax bills for estates valued at only slightly over $2,062,500.

Another change is to the look-back time frame for gifts made above the amount of $14,000 in one year, for an individual, or over $28,000 for a married couple. Now, the state will include gifts in excess of those exemption levels when calculating the value of estates, if the gifts were made within three years of death.

If this sounds confusing, it doesn’t have to be. Many estate tax pitfalls can be avoided through careful estate planning. Consulting an estate planning professional about which assets are considered when valuing estates for tax purposes can be of great help when creating the most effective estate plan to preserve assets.

Source: Rochesterhomepage.net, “Changes to New York State's estate taxes,” by Mark Gruba, April 28, 2014

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