With the goal towards modernizing New York's estate and gift tax, Governor Cuomo, with New York State's 2014-2015 budget, has proposed changes to the estate and gift tax law. The first change calls for increasing the New York State estate tax exemption over a four year period to $5,250,000 and, by 2019, the state estate tax exemption is to be in conformity with the federal estate tax exemption. In conjunction with this, the top New York State estate tax rate will be gradually reduced from 16% to 10% over the same four year period. In addition, the New York generation skipping transfer tax enacted in 1999 will be repealed. The revenue generated by the New York generation skipping transfer tax returns was approximately $500,000 annually and the impact of this repeal is nominal.
More significantly, the 2014-2015 budget proposal calls for the adding back into the New York gross estate the value of any lifetime taxable gifts made by a New York resident decedent after March 31, 2014. The addition to the gross estate of taxable gifts made during the lifetime of a New York resident decedent will increase the state estate tax due.
The final proposed change to New York estate and gift tax law is the closing of the resident trust loophole. Currently, income earned by a trust may be included in the income of the grantor, the trust or the beneficiaries but the accumulated income of non-resident trusts, exempt resident trusts and incomplete gift, non-grantor trusts are not taxed at the grantor, the trust or the beneficiary level, i.e. the resident trust loophole. The proposed budget change would tax beneficiaries of non-resident trusts and exempt resident trusts on the accumulated income of the trusts when the income is distributed to the beneficiary. In addition, the income of incomplete gift trusts established by a New York resident would be taxed in the current income of its grantor.
Governor Cuomo's proposed 2014-2015 budget is set to be finalized April 1st. Accordingly, we strongly recommend that New York residents work in the interim with their tax and estate planning advisors to determine if and how the budget proposals (if passed) may impact their estate plans and income tax strategies.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
