BY ANTHONY J. ENEA
Fearing a continued exodus of affluent New Yorkers to states that do not impose a state estate tax, the state has finally enacted considerable changes to New York Tax Law Section 952. Among the changes now in place are new basic exclusion amounts for the imposition of New York estate taxes.
The basic exclusion totals are now as follows for individuals dying on or after:
”¢ 4/1/14 and before 4/1/15 ”“ $2,062,500 per person exclusion;
”¢ 4/1/15 and before 4/1/16 ”“ $3,125,000 per person exclusion;
”¢ 4/1/16 and before 4/1/17 ”“ $4,187,500 per person exclusion;
”¢ 4/1/17 and before 1/1/19 ”“ $5,250,000 per person exclusion.
Clearly, the significant disparity that existed between the federal estate and gift tax credit ($5.34 million per person for 2014) and the substantially smaller New York exclusion ($1 million per person) was a significant impetus for the enacted changes. It should be noted that after Jan. 1, 2019, the basic exclusion amount will be indexed for inflation from 2010. Thus, the New York exclusion will be equal to the federal amount of $5.34 million effective Jan. 1, 2019.
Unfortunately, while Gov. Andrew Cuomo and the state Legislature were in favor of increasing the basic exclusion amount, it appears that they believed that if the estate of the deceased individual exceeded the basic exclusion amount by more than 5 percent, then the entire taxable estate should be subjected to a New York estate tax. With the top rate remaining at 16 percent, this can result in significant New York estate taxes ”“ especially during the period prior to the exclusion amount reaching $5.25 million on April 1, 2017.
Also important to note is that while under federal law the surviving spouse can utilize the unused federal exclusion of the dead spouse ($5.34 million) pursuant to the “portability” provisions, no such provision exists under New York state law.
Although there was discussion of a significant “add back” to the taxable estate for taxable gifts made, its application was significantly limited to a three-year look back in the enacted legislation. As it now stands, the New York gross estate of a deceased individual will be increased by the amount of any taxable gift not otherwise included in the decedent”™s federal gross estate made during the three-year period ending on his or her date of death. This does not include any gift made: (1) when the decedent was not a resident of New York state; (2) before April 1, 2014; or (3) on or after January 1, 2019.
While this “add back” regarding taxable gifts may succeed in generating additional estate tax revenue, it could also result in New Yorkers seeking nonresident status if they wish to avoid the estate tax and are interested in sheltering assets from the cost of long-term care.
Clearly, the changes to the New York estate tax are welcomed. However, whether in the long run they will have the intended effect of preventing New Yorkers from moving to tax friendlier states is something only time will tell. It is definitely a step in the right direction.
As of Jan. 1, 2019, married New Yorkers will be able to exclude $10.68 million from federal and New York estate and gift taxes. This leaves only a very small minority of couples (less than 1 percent) that will be impacted by estate and gift taxes. Even so, the significant costs of long-term care, whether it be at home care or in a nursing home, is still something that all seniors should be concerned about. With a nursing home in Westchester costing on average approximately $155,000 per year for care, the failure to shelter one”™s assets from these costs will be devastating. Utilization of such planning tools as a Medicaid asset protection trust and long-term care insurance should be strongly considered.
Anthony J. Enea is a managing member of Enea, Scanlan & Sirignano L.L.P. with offices in White Plains and Somers. Enea is the past chairman of the New York State Bar Association”™s Elder Law Section and was named Westchester County”™s Leading Elder Care Attorney at the 2013 Above the Bar Awards. He can be reached at 914-948-1500 or A.Enea@esslawfirm.com.
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