New York Modifies Taxes for Estates, Gifts, Trusts

Estate Tax Threshold Increases, effective immediately:

Purportedly designed to stem taxpayer flight from the state, effective April 1, 2014, the estate tax exclusion will rise substantially — via a four-year phase-in — from the current $1 million to $5,250,000 by 2017. Increases will be indexed for inflation afterwards.

However, there will be little benefit for those with larger estates. If the estate exceeds the exclusion by more than 5%, the entire taxable estate (i.e., there is no exclusion) is subjected to the NY estate tax. Further, while the rates are graduated, those with larger estates should also be aware that the maximum NYS estate tax rate remains unchanged at 16%.

Gifts Within Three Years of Death are Taxed (Again)

Gifts made by a NY resident on or after April 1, 2014 and within 3 years of that individual’s death will be added back into the estate. This increases the gross estate and may make those gifts subject to the NY estate tax, depending upon the size of the estate as adjusted.

Income Taxes for New Yorkers with “Incomplete Gift” Trusts in Non Tax States

Used as a shelter from New York income tax, incomplete gift non-grantor trusts (commonly referred to as DING or NING Trusts in Delaware and Nevada, respectively) will now be treated as taxable to the New York grantor.  Also, undistributed income from a New York resident exempt trust will be taxed when it is distributed to a NYS resident.

The Will Doctor finds it hard to believe that NY had made it’s taxes more complicated and still more expensive than many delightful alternative jurisdictions.  We are working to asses how to minimize the effect of these changes on our planning options.


Posted in Status of Tax Legislation, WillPlan Blog.

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