Governor Cuomo’s newly enacted Budget for New York was touted as a major estate tax break for New Yorkers. The new bill raises the exemption amount in 2014 from the previous $1 million to $2,062.500 and by 2017 the exemption amount will be over $5million meaning that 90% of New Yorkers will not have a taxable estate. The trouble arises with a new provision that creates a “tax cliff” that will affect many New Yorkers before 2017. New Yorkers with estates over 5% of the exemption amount of $2,062,500 will forfeit their exemption altogether. That means that in 2014, New Yorkers with a $2,165,625 (5% over the $2,062,500 exemption amount) estate will forfeit their $2,062,500 exemption and have to pay over $160,000 in estate tax (more than 100% of the amount over the exemption) as opposed to around $90,000 under the old tax structure. This only gives New Yorkers a $103,125 buffer before they are forced over the “tax cliff.” Here is the new exemption schedule:
For deaths as of April 1, 2014 and before April 1, 2015, the exemption is $2,062,500.
For deaths as of April 1, 2015 and before April 1, 2016, the exemption is $3,125,000.
For deaths as of April 1, 2016 and before April 1, 2017, the exemption is $4,187,500.
For deaths as of April 1, 2017 and before January 1, 2019, the exemption is $5,250,000.
Any estate that is more than 5% above the exemption, however, loses their exemption and is taxed on the entirety of the estate. The new bill also eliminates New York’s unlimited lifetime gifting which previously allowed for unlimited gifts to be given during a persons lifetime tax free. Now, there is a 3 year look-back period on all lifetime gifts, meaning any gifts given within the 3 year period before the decedents death are pulled into the total value of the estate. Now more than ever it is important to sit down with an estate planning attorney to develop a wealth management plan that helps you avoid going over New York State’s “tax cliff”.