The best parts of my job are the constant learning and the interesting reading. In preparing for this series on tax planning, I reviewed both the income and the estate tax schemes of the Internal Revenue Service in the states in which I practice.
I am glad I did, and you should too.
I had forgotten about the changes to the New York State Estate Tax plan.
For deaths on or after of April 1, 2014, residents of New York leaving an estate of more than $2,062,500 will be subject to New York State Estate Tax.
Please note, that means even if you are not subject to the Federal Estate Tax, you are subject to the New York State Estate Tax.
So here’s the good news:
1. The size of the estate is up to $2,062,500 from $1,000,000;
2. The tax rate is less than the Federal Estate Tax – 16%;
3. Some of the New York State Estate Tax is deductible on the Federal Estate Tax Return; and
4. The exempt amount will keep going up each year until 2019, when it should match the exemption from federal estate tax, which by then is likely to be almost $6 million.
5. After 2019 New York State will match the Federal Exemption.
And now the bad news:
New York State has enacted an estate tax “cliff.” What’s a “cliff”? Beats the heck out of me, until I read this provision in my preparations. The Federal Estate Tax exemption and most state estate tax exemptions work as follows: anything below the threshold is not taxed and anything above the threshold is taxed. The tax rate goes up to the maximum rate.
New York taxes the entire value of an estate that exceeds the exempt amount. That’s 16% against the whole estate, not just the amount over the exemption.
My suggestion – work here, play here, just don’t die domiciled here.