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Overview of Federal and New York Estate Tax

For the majority of tax paying individuals, federal estate tax will not be an issue for them while the Tax Cut and Jobs Act of 2017 legislation is still in place. It is recommended that individuals review their estate planning documents to make sure they still achieve a desirable goal in light of the new laws.


Beware of the NYS estate tax cliff: Overview of Federal and New York Estate Tax

Federal Estate Tax

On December 20, 2017, Congress made sweeping changes to the federal estate and gift tax laws, most commonly known as the “The Tax Cut and Jobs Act (TCJA).”1 The agency responsible for implementing and interpreting the TCJA is the Internal Revenue Service (IRS). Many of the answers are still unclear as to the application of some of these changes to practitioners, but guidance is slowly coming out.  What we do know is that the basic exclusion amount for federal estate tax nearly doubled from $5,000,000 to $10,000,000, indexed for inflation occurring after 2011 for estates and individuals dying after 2017 and before 2026. For 2019, the federal exclusion amount is $11,400,000. 

For the majority of tax paying individuals, federal estate tax will not be an issue for them while this legislation is still in place.  It is recommended that individuals review their estate planning documents to make sure they still achieve a desirable goal in light of the new laws. It is important to note that the 40% tax rate for estates remain unchanged, along with the portability election for spouse’s unused exemption amount and the “step up” in basis rules for certain types of property (including real estate and stocks). Further, these new rules are set to expire in 2025, reverting back to a $5,500,000 exclusion amount. 

New York Estate Tax

In April of 2014, NYS increased their estate exclusion amounts to gradually match the federal amounts by January 1, 2019 pursuant to the 2012 federal legislation. With TCJA in 2017, federal legislation has changed so there is again a discrepancy between the federal and New York estate exemption amounts. 

For 2019, the New York estate exclusion amount is $5,740,000. But there is a catch here. New York has what they call a “cliff” which phases out the New York exemption amount gradually above a certain estate level. 

The cliff can cause much hazard to a New Yorker’s estate, such that if an individual’s estate amount is 105% more than the exclusion for New York, their entire estate is taxed in New York. For example, if a decedent’s estate was $6,050,000 at death, they would owe no federal estate tax because it is below the $11,400,000 exclusion amount, but they would be over the NYS estate tax exclusion by $310,000. That $310,000 increase results in a state estate tax owed of $516,800 because it is 105% more than the exemption, resulting in 100% of the estate taxable to New York State!

Although NYS does not have portability of a spouses unused exclusion amount like the federal does, they do have an unlimited marital deduction. This coupled with other estate planning techniques could avoid NYS estate tax if drafted properly. The inclusion of a “santa clause” in a trust or will is also recommended. The “santa clause” includes a provision which gives the ability of the trustee or executor to maximize the estate planning tools and techniques included in their estate to reduce their taxable estate to the exemption amounts to avoid “the cliff”. The use of Qualified Terminable Interest Trusts (QTIPS) coupled with the unlimited marital deduction in New York or credit shelter trusts would be useful for situations like this.

The level of uncertainty surrounding the implementation and effect of the TCJA coupled with a changing political environment makes it as important as ever to have a team behind you. We continue to stay up to date to serve our clients the best we can. 

 At Curran Wealth Management we recognize the importance of looking at our client’s financial picture as a whole and working with our client’s existing professional advisors to help quarterback for you, or help assist in your estate plan.  

[1] https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax

Please check with your tax advisor, your Curran Wealth relationship manager, or contact Curran Wealth Management if you have any questions.  518.391.4200  info@curranllc.com

The material contained in this article is for educational and informational purposes only.  The information herein is considered to be obtained from reference sources deemed reliable, but no representation or warranty is made as to its accuracy or completeness.  The contents of this article are based on the tax laws existing at the time of publication.  Tax laws are subject to continual change.  In addition, tax laws vary by state.  This article is not, and should not be regarded as tax advice.  The information contained in this article may not apply to your personal circumstances.  Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation.  If you would like a detailed analysis of your tax situation, with specific tax recommendations, you can discuss the possibility of pursuing a formal relationship with Hippo Tax Services.