Significant Changes to New York Estate and Income Tax Enacted

April 2014

We previously alerted you to proposed legislation affecting New York estate tax law, the tax treatment of gifts by New York residents, and New York income taxation of certain trusts. This month Governor Cuomo signed final legislation into law, which included some changes from the initial proposal. Some of the important provisions of the final legislation are highlighted below.

Provisions of interest to all New Yorkers

1) Increase in New York Estate Tax Exemption Amount:

The New York estate tax exemption (i.e., the amount an individual may pass at death free of New York estate tax), which was previously $1,000,000 per individual, has been immediately increased to $2,062,500 for individuals dying on or after April 1, 2014, and is scheduled to increase each year over the next five years so that it is equal to the Federal estate tax unified credit amount (currently, $5,340,000 per individual and indexed for inflation) for estates of individuals dying on or after January 1, 2019.

The New York estate tax exemption is phased out for taxable estates valued above the exemption amount, and no exemption is available for taxable estates valued above 105% of the exemption amount.

While proposed legislation would have reduced the top New York estate tax rate, the final legislation preserves the current maximum rate of 16%. (The maximum rate is reached for individuals with taxable estates exceeding $10,100,000.)

The effect of the new law is that an individual who will have a taxable estate valued below 105% of the increased exemption amount should have a lower New York estate tax burden than under the prior law. An individual who will have a taxable estate valued above that threshold will not receive the benefit of the New York exemption amount, but, because of the way the estate tax is calculated, should generally pay the same amount of New York estate tax as under the prior law. The increased exemption amount should provide some tax savings for married couples above that threshold. However, proper planning – including careful titling and ownership of assets between married couples – will be necessary to realize the full benefits of the increased exemption amount.

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