The Elder Law Minute™ Changes to New York State’s Estate Tax By Ronald A. Fatoullah, Esq. and Debby Rosenfeld, Esq. New York State is one of a handful of states that still imposes an estate tax. The estates of New York State residents and the estates of nonresidents who owned real estate and/or tangible personal property in New York State are subject to an estate tax. Under current law, for New York residents, an estate may be subject to an estate tax if the total of the federal gross estate plus adjusted taxable gifts exceeds $1 million. New York State’s estate tax is currently based on Federal law as it existed in 1998. The Federal exemption level for both estate and gift taxes has increased to $5.34 million. Accordingly, New York’s model is clearly outdated and this was the impetus for Governor Cuomo’s establishing the Tax Reform and Fairness Commission. The purpose of the Commission was to review New York State’s complex tax structure and to devise revenue neutral options for modifications. The Commission’s final report (the “Report”) was released in November, 2013. The Report includes several proposals related to amending New York’s estate, gift and generation skipping transfer taxes. In addition to noting that New York’s estate tax is outdated, the Commission observed that New York’s exemption of $1 million has been criticized as being too low considering the increase in value of many residents’ assets. It reiterated concerns that have been expressed about New York taxpayers moving to different states that do not impose any estate tax. Further, under the new federal law, the exemption for gifts has increased considerably (there is now a combined federal and gift exemption of $5.34 million). Accordingly, there is a concern that people will gift more, resulting in estates of lower values, thereby eroding the New York estate tax revenue. To address the impact of the estate tax on New York’s attractiveness and to account for increases in asset values since 1998, the Commission made several proposals. Firstly, the Commission recommended that the estate tax be based on a newly reconstructed rate table no longer connected to the Federal estate tax of 1998. The restructured tax would raise the threshold from $1 million to $3 million. This would effectively eliminate almost 75 percent of all estates from this tax. The Commission also proposed repealing New York’s generation skipping tax. The generation skipping tax is aimed at taxpayers who seek to avoid estate tax by transferring property to grandchildren prior to death. The Federal generation skipping tax operates with the same purpose in mind so a state tax is not necessary. Further, the generation skipping tax has not been a major source of revenue to New York State. Finally, the Commission recommended reinstating the gift tax. The New York State gift tax was repealed in 2000. Without a gift tax, taxpayers can easily minimize or completely avoid the estate tax by making lifetime gifts. The significant increase in the Federal gift tax exemption has promoted an increase in gifting which has reduced the amount of New York taxable estates. Reinstatement of the gift tax would correct that. Another ELDER LAW ROnald Fatoullah, ESQ, CELA* alternative would be to require estates to add back the value of any gifts above a certain threshold before computing the taxable estate. At this point, these proposals are simply recommendations and have not been passed into law. Hopefully, this will be resolved soon when new legislation is enacted. Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that exclusively concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. The firm has offices in Forest Hills, Great Neck, Manhattan, Brooklyn, and Cedarhurst, NY. This article was written with the assistance of Debby Rosenfeld, Esq., a senior staff attorney at the firm. Ronald Fatoullah & Associates can be reached by calling (718) 261-1700, 516-466- 4422, or toll free at 1-877-ELDER-LAW or 1-877-ESTATES. Incredible Support That Will Never Be Forgotten Sinai Chapels respects all Jewish traditions and customs, has a compassionate staff that is second to none, and has three generations of experience serving New York’s Jewish families. Preplanning Sinai Preplanning protects your family from unexpected expenses and making complex choices at a most difficult time. Your wishes are reflected in a unique and personal service. Costs are reasonable, all budgets are accommodated, and your investment is FDIC insured. Our staff Rabbi is available to answer your questions. For a no obligation consultation at our office or in your home, please call us. Sinai Chapels 162-05 Horace Harding Expressway, Fresh Meadows, NY 11365 718.445.0300 or 800.446.0406 We are here 24 hours, to serve your family. We offer FDIC insured pre-planning. www.JewishFunerals.com North Shore Towers Courier n March 2014 29
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