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New NYS Estate Tax Law

Author: Linda Grear

April 3rd, 2014

On March 29, 2014, Gov. Andrew M. Cuomo and legislative leaders announced an agreement on New York State’s 2014-2015 budget which included several tax law changes.

As of April 1, 2014, the legislation made significant changes to the estate and gift tax law. First, there is an increase of the New York State estate tax exemption over a four year period to $5.9 Million, by the year 2019, so the NYS estate tax exemption will conform with the Federal estate tax exemption.

Before April 1, 2014, the amount an individual could leave at death without owing NYS estate tax was $1 Million and the decedent’s estate would only pay NYS estate tax (with up to 16% top rate) on assets above the $1 Million threshold.

As of April 1, 2014, the NYS estate tax exemption amount is $2,062,500, which will shield many more individuals from NYS estate taxes. However, if an individual dies with just 5% more than $2,062,500, there is a cliff taxing the decedent on the full value of the estate, not just the amount over the exemption amount. This is a significant change in the estate tax law.

Updated NYS estate tax 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.

Commencing January 1, 2019 and later, the NYS exemption amount will be linked to the Federal amount, which the IRS sets each year based on inflation adjustments (projected to be $5.9 Million in 2019). The top NYS estate tax rate remains at 16%.

In addition to the cliff, there are other problematic issues with the new law. There is no portability provision, such as under the Federal law, allowing a surviving spouse to use their predeceased spouse’s unused estate tax exemption to shelter twice as much.

Significantly, the new law includes a three-year look-back for taxable gifts for gifts made on or after April 1, 2014 and before Jan. 1, 2019 (those gifts are pulled back into your estate). The value of any taxable gifts made in the three years prior to death will increase the state estate tax due.

If you have any questions about the above material, or wish to speak to an Estate Planning attorney, please contact HoganWillig, Attorneys at Law at (716) 636-7600 or visit www.hoganwillig.com HoganWillig’s main office is located at 2410 North Forest Road in Amherst, New York with additional offices in Lockport, Lancaster and Buffalo.

Cuomo’s Estate Tax: Maybe New York Won’t Be One of the Worst Places to Die

Author: Hogan Willig

March 22nd, 2014

Forbes has dubbed New York one of the worst places to die in 2014. The reason for the moniker is the estate tax which is a tax on your right to transfer property at your death. New York, along with only thirteen other states, still levies the tax. The state estate tax is in addition to the federal estate tax. The liability threshold in New York is $1 million dollars, whereas the federal threshold is $5 million – indexed for inflation to $5.34 million. In New York, the estate tax can be up to 16% of an individual’s taxable estate. To determine if an estate tax return is due in New York, the gross estate must be determined. The New York State Department of Taxation and Finance defines the gross estate to include all property that a person owned, had control over, or had an interest in on the date of his or her death. It is not just limited to what a person leaves, or bequests, in their will. It can include life insurance policies, half of the house one owned with their spouse, a stock portfolio and beyond.

At first blush, one may consider this threshold would not apply to them, perhaps believing that if annual income does not exceed $1 million their estate will be exempt. In actuality, individuals subject to the estate tax are not just the big annual wage earners, but those who have more than $1 million in assets, no matter the source. New York had 429,153 households with $1 million or more in 2013, that composes 5.79% of all households in New York State, the 12th largest share of any state. The report is based on liquid assets and does not include real property. The number is underestimated as real estate has risen in value over time owned. This is especially true in and around New York City where owning an apartment or home worth close to $1 million may only get you 900 square feet on the Upper West Side.

As a result, New York has seen its residents establish domicile, or permanent residence, in a state that has more favorable estate tax treatment. Florida is a perfect example of this, as Florida has no estate tax liability. Those that have often been referred to as ‘snowbirds’ not only avoid the harsh New York winters, they may also have another motivation for compiling significant time in states like Florida. An individual can avoid the inhospitable estate tax as well (provided the steps taken to change residence can withstand a New York State Department of Taxation and Finance tax audit).

New York State may be catching on. This year has seen a strong proposal from Governor Andrew Cuomo to raise the estate tax to match the federal threshold by the year 2019. There would still be an estate tax, just at a higher threshold and a lower percentage. Not only would it match the federal level of $5 million, indexed for inflation, the top tax rate would be reduced from 16% to 10%.

As one can imagine, this incites strong opinions from both sides of the fiscal coin. There are those who purport the only people who would benefit are the wealthiest 2% of New Yorkers, and others who say it would incentify New Yorkers to keep and invest their wealth in their home state. Although the outcome is difficult to predict, it is clear that raising the New York State threshold would permit New Yorkers to have more control over a greater value of their assets upon death in New York. Fear not if there is no Boca condo, for there are numerous estate planning techniques that can permit an individual to retain their assets for distribution to the people and things they value that do not include relocating to another state. However, a higher estate tax threshold in New York may serve to lessen the time one has to sit down and think around the problem by eliminating it.

IRS develops rule on same sex marriage after Windsor

Author: Hogan Willig

September 6th, 2013

On June 26, 2013, the U.S. Supreme Court decided United States v. Windsor, a case involving a same sex couple married in New York, where such marriages are authorized.  One of the women died leaving a substantial estate.  An estate tax return was filed and the surviving spouse, because of the Defense Of Marriage Act (DOMA), was not entitled to the unlimited spousal deduction that heterosexual couples could take advantage of generally reducing the estate tax on the first death to zero.  The spouse filed the return, the IRS disallowed the spousal deduction, and the surviving spouse sued for a refund of taxes paid.

The Supreme Court decision, effectively, determined that DOMA was unconstitutional and that the taxpayer should be treated the same for federal tax purposes whether a traditional married couple or same sex married couple.

In response to the ruling, the Treasury Department (which runs the IRS) needed to change its rules about same sex marriages so that the income and estate taxes would now be the same for either couple.

One question not answered by the Supreme Court was “What if a same sex couple married in a state that allowed such marriage, but now resided in a state which did not?”  As part of its rules to comply with Windsor, the IRS has ruled on this as well.

Revenue Rule 2013-17 was issued on August 29, 2013 (operational September 16, 2013).  This Revenue Rule uses the prior rulings of the IRS regarding “common law marriage” to establish a blanket rule for all married couples.  In 1958 the IRS determined that couples recognized as married in common law states – that is where no formality of marriage is required – but then moving to another state where a ceremony is required are still married for tax purposes.  Now the same rationale is held for same sex married couples.  The key is where you were married.  If married and living in a state that recognizes same sex marriage, you are married for federal tax purposes. If you are married in state that recognizes the marriage and then move to a state that does not, for federal tax purposes you will be treated as married -entitled to all of the benefits (and costs) that are associated with the marriage – wherever you are.  This rule does not affect the tax schemes of any individual states or localities.

Caveat- Under the Revenue Rule -Domestic Partnerships and Civil Unions are not marriage and so are not treated as such under the tax code.

For same sex couples the income and estate tax planning techniques long used are now available, but so are the marriage penalty and other tax negatives.  So, be sure to see your tax advisor.  We at HoganWillig can help you in your planning needs.

Expiring Tax Law May Take Substantial Opportunity With It

Author: Hogan Willig

July 23rd, 2012

Back in December 2010 there was a much reported flurry of work done on changes to the US Tax laws. One of the big changes was to increase the amount an individuals could pass free of estate or gift (“transfer”) taxes. The changes made it possible to pass during $5,000,000 you life or at death (or combination thereof) without paying either of the transfer taxes. This “exemption amount” was substantially more than in prior years. (The amount is adjusted for inflation and is $5,120,000 for 2012.) Additionally, the then new law made it possible for spouses to share this amount so that a surviving spouse could use any unused portion of a predeceased spouses $5,000,000.

This new exemption equivalent, along with the continued annual $13,000 annual exclusion, now made it possible for business owners and families with highly appreciated assets or businesses to pass substantial wealth to their families transfer tax free. That is not to say only people with more than $10,000,000 can benefit, but everyone with more than $1,000,000 in estate taxable items may find advantages.

What are the “Bush Era Tax Cuts” that everyone is talking about?

Author: Hogan Willig

April 6th, 2012

The news is full of talk about President Obama wanting to repeal “The Bush Tax Cuts” for the wealthy. Also, the compromise tax law that passed at the end of 2010 is scheduled to expire or “sunset” on December 31 of this year – sort of automatically repealing the tax cuts for everyone. But what are the tax cuts? How will the changes look basically? That is the key.

1.  Income Tax:

The personal income tax rates would revert to 2001 levels, so:

  • Current rates – 10%, 15%, 25%, 28%, 33%, and 35%
  • Revert to old rates – 15%, 28%, 31%, 36%, and 39.6%

Capital gains rates would also revert to 2001 levels as well. Short term capital gains (assets held less than one year) would continue to be taxed the same as the ordinary rate. Long term gains (assets held a year or more) would see higher capital gains taxes.

No Deal Likely on Federal Estate Tax Extension

Author: Hogan Willig

December 22nd, 2009


While the House recently passed a bill to reinstate the estate tax in 2010, last week the Senate rejected a measure to temporarily extend it.

As we previously announced, the House of Representatives voted to permanently extend the present 45% estate tax rate, and the $3.5 million (per person) exclusion from estate taxes.

However, arguments over the tax rate and the exclusion amount developed in the Senate. Democrats in general were ready to approve the House version, while some Republicans preferred a lower tax rate of 35% and a higher exclusion of $5 million. Therefore, as a result of a deficit of 60 supporting votes, the Senate did not pass an estate tax extension.

If the Senate adjourns without getting an extension before January 1st, Congressional leaders have said they plan to enact a retroactive fix early next year. Generally, when a law is passed, it becomes effective on the date of passage. However, this law would be an exception. In order to avoid a complete repeal of the estate tax in 2010, this law is expected to contain a provision making it retroactive to Jan. 1, 2010.

Even when setting aside the issue of the constitutionality of a retroactive tax, the possibility of imposing an estate tax retroactively would create administrative and planning headaches for financial planners, accountants, lawyers and heirs of estates.

However, given that there are not 60 votes yet in the Senate to support a temporary extension of the estate tax, it is not clear whether there will be a sufficient number of votes next year either. We will certainly keep you up to date as this matter develops. However, in the meantime, you should keep in mind that the current legislation and 2010 repeal does not mean that there won’t be any tax consequences for those who inherit assets or receive gifts.

The good news is, if Congress doesn’t act, there will be no federal estate taxes for 2010. Businesses, stocks, and other assets can be passed on to heirs without being hit with tax rates as high as 45%.

The bad news is that there are still state estate taxes to consider. Further, there will be only a limited step-up in basis. Under current federal estate tax laws, the assets of the deceased get a step-up in basis to the fair market value at date of death (or 6 months later). The benefits to the step up in basis are realized when heirs sell assets with little to no capital gains tax consequences. In 2010, if the estate tax is repealed, the step-up in basis is limited to $1.3 million for the overall estate, plus $3 million for assets transferred to a surviving spouse. According to a Congressional Joint Committee on Taxation, it is estimated that losing the step up in basis would affect a projected 71,000 estates in 2010.

Additionally, there will also be changes in gift tax rates, which are 45 percent in 2009 but will be reduced to 35 percent if estate taxes lapse in 2010. Finally, and most importantly, if Congress doesn’t take any action at all, in 2011, the former law regarding estate tax levels is reinstated, meaning that all estates over $1 million will be taxed, with federal tax rates up to 55%.

Again, we will certainly keep you up to date on these issues as we move forward into the New Year. However, you should also consider the various other benefits to estate planning beyond the strategy to minimize or eliminate estate tax. Other issues such as asset protection, dysfunctional family situations, disabled beneficiaries, disposition of retirements assets and business succession issues can be just as important, if not more so, than the traditional transfer tax issues.

Please feel free to contact our office if you would like to discuss these matters in further detail.

Breaking News

Author: Hogan Willig

December 7th, 2009

House Cancels Estate Tax Repeal, Extends Current Tax Rate

Last week, the House voted 225 to 220 to permanently extend the estate and gift tax in its current form. This means that the first $3.5 million of an individual’s gross estate – and the first $1 million of gifts made during an individual’s lifetime – would be exempt from tax. The highest rate applied to the taxable portion of an estate would remain at 45%.


At first blush, it appears that no decision has been made concerning the potential repeal of the step up in tax cost basis. However, we are continuing to monitor this matter and we will continue to update you as we receive more information.


You may be aware that the step up in tax cost basis currently minimizes the potential for capital gains taxes. This occurs whether or not an estate is subject to federal estate tax. Stocks and other appreciating assets can benefit from the step up in tax cost basis, with the exception of stocks and other assets inside of IRAs or similar qualified retirement accounts. As you can see, almost all estates benefit in some way from the step up in tax cost basis benefit the tax code bestows. Taking away the step up in tax cost basis could result in one of the largest tax increases in estate tax law history, and would likely affect a majority of all estates that have appreciated assets or property, no matter their size. Again, we will keep you apprised of any changes.


If you have any questions or concerns about the extension or about step up in tax cost basis, please contact estate planning attorney Linda Grear at 716-636-7600.


We Practice Law for Your Peace of Mind