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MAJOR changes to New York's estate tax law!

4/8/2014

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As of April 1, 2014, New York has doubled its estate tax exemption amount from $1 million to just over $2 million. Better yet, the exemption amount will continue to increase over the next several years until it becomes linked to whatever the federal estate tax exemption amount is (currently about $5.25 million). This now puts the estates of most New Yorkers beyond the reach of any estate tax. (Perhaps one day New Jersey will catch up. Currently, any estate valued over $675,000 is subject to estate tax in New Jersey.)

However, there is a HUGE caveat to these changes: If the estate is valued at more than 5% over the exemption amount (currently, 5% over approximately $2 million), then the ENTIRE estate becomes subject to New York's approximately 16% estate tax rate. Under the old law (and under federal law) only the portion of the estate exceeding the exemption amount was taxed (at the same 16% rate).

Imagine if you die in New York with an estate that is just one dollar over 5% more than the exemption amount. Then your estate pays 16% of the whole estate rather than zero in estate taxes.

Additionally, the new changes don't include a portability provision like federal estate tax law does. Portability essentially means that if one spouse of a legally married couple dies and doesn't use his full exemption, the surviving spouse can use it when he or she dies, effectively doubling the exemption amount a married couple can enjoy. But again, this is only for federal purposes, not New York state purposes. The good news is that an experienced estate planning attorney can include trust provisions in the wills of a married couple that effectively achieve the same thing, even for New York estate tax purposes.

So, despite this being a great thing for the vast majority of New Yorkers who are not "super rich"--even if some of those people have quite sizable estates--for a certain part of the population perils still exist. 


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Marriage equality has major tax consequences for same-sex couples in NY

6/20/2011

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The New York City Bar Association's Estate and Gift Taxation Committee just issued a short but powerful memorandum highlighting the inequities same-sex couples face when it comes to taxes in the absence of marriage equality. The report has two main points:

First, when one half of a heterosexual married couple dies, the deceased spouse's assets transfer tax-free to the surviving spouse, and no tax is due (if at all) until the death of the second spouse. However, no such benefit exists for same-sex couples--not even for same-sex couples legally married in other states. Many people incorrectly believe that NY recognizes same-sex marriages performed in other states. Granted, in many ways NY does recognize such marriages, but thanks to DOMA it does not recognize married same-sex couples when it comes to estate taxes.

Second, same-sex couples are treated unfairly when it comes to the generation skipping tax (GST). In a nutshell, the GST is levied against assets that pass from one generation to a generation two or more levels below the original generation (i.e., gifts from grandparents to grandchildren). The general purpose (put very succinctly to avoid your eyes from glazing over) is to avoid assets transferring tax-free. The main point here is that heterosexual married spouses can transfer assets tax-free between them, regardless of their age difference (i.e., even if they're more than a generation apart in age). However, for same-sex couples, due to the GST, if the age difference between the same-sex partners is 37.5 years or more, the GST will be levied against the surviving partner. This scenario might not apply to the majority of couples, but it is an unacceptable inequality nonetheless.

Tax equality might not be a glamorous reason for why marriage equality is necessary, but it's a very important one.  Without marriage equality there are two classes of (otherwise nearly identical) tax payers New York. If marriage equality doesn't happen today (the last day of the legislative session) then the battle must go on when the legislature reconvenes.
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    These posts have been provided by the Law Office of Michael Bond for general educational purposes and do not constitute legal advice or create an attorney-client relationship. For more information about the contents of these posts, or if you have any other estate planning questions, please contact Michael Bond at
    646-535-1529 or mike@michaelbondlaw.com.

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