On April 1, 2016, the New York State ("NYS") estate tax exclusion amount increased to $4,187,500, further narrowing the gap between the NYS estate tax exclusion amount and the Federal estate, gift and generation-skipping transfer ("GST") tax exemption amounts ($5,450,000 as of January 1, 2016). This distinction, coupled with the particularities of New York law, results in a planning environment filled with opportunities and potential pitfalls.
NYS Estate Tax Exclusion Increased to $4,187,500 on April 1, 2016
As part of the NYS fiscal plan for 2014-2015, Governor Cuomo signed legislation to make broad changes to the NYS estate and gift tax laws.
Since April 1, 2014, the NYS estate tax exclusion amount has increased incrementally, and will continue to increase until it matches the Federal estate tax exemption on January 1, 2019, as follows:
| For decedents
dying on or after: |
And before: | The NYS exclusion amount will be: |
| April 1, 2016 | April 1, 2017 | $4,187,500 (increased from $3,125,000 for decedents dying April 1, 2015 - March 31, 2016) |
| April 1, 2017 | January 1, 2019 | $5,250,000 |
| January 1, 2019 | scheduled to equal the Federal estate tax exemption amount |
Other NYS Estate Tax Issues to Keep in Mind
- Beware the NYS estate tax "cliff." The benefit of the NYS exclusion amount is "phased out" for taxable estates between 100% and 105% of the exclusion amount. As a result of this "cliff," taxable estates that exceed 105% of the exclusion amount will lose the benefit of the exclusion completely ---- the entire taxable estate will subject to the NYS estate tax (applied at graduated rates).
- Consider the "Three-Year Look-Back" for taxable gifts made after April 1, 2014. For New York residents who die before January 1, 2019, taxable gifts made after April 1, 2014 and within three years of the date of death will be taken into account for NYS estate tax purposes.
- Top NYS estate tax rate remains unchanged at 16%.
Federal Exemptions Also Increased in 2016
The Federal estate, gift and GST tax exemption amounts have all increased as of January 1, 2016. The increased amount, compared to the amounts available in 2013, 2014 and 2015, is as follows:
Unified estate, gift and GST tax exemption
- 2013 - $5,250,000
- 2014 - $5,340,000
- 2015 - $5,430,000
- 2016 - $5,450,000
The increased exemptions allow individuals to shelter greater amounts from Federal estate, gift and GST taxes, now imposed at 40%. For example, in 2016, a married couple would be able to transfer a total of $10,900,000 free of these Federal taxes, either during their lifetimes or at their deaths. Even a married couple who has already utilized the full 2012 exemptions ($5,120,000 each) will have an additional $660,000 of exemption ($330,000 each) available for planning in 2016.
Annual gift tax exclusions are available in addition to the exemptions, so that each year an individual may make gifts of $14,000 (or $28,000 for "split" gifts by a married couple) to an unlimited number of recipients ---- without using up any of the individual's gift tax exemption.
Conclusion
The gap between the NYS and Federal estate tax exclusion amounts has been narrowed and will be eliminated in 2019. For the next few years, as the exclusion amount continues to increase and the three-year look-back for taxable gifts applies, planning will continue to be complex. In any event, it is important to consider whether changes to your estate plan or gifting strategies are appropriate.
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