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Estate Planning and the NY Estate Tax Exemption Cliff

NY has passed legislation that has increased the estate tax exemption from its previous level of $1million to a current value of $3.125,000 and increasing to $4,187,000 on 4/1/2016 and $5,250,000 on 4/1/2017 and on 1/1/2019 and thereafter matching the Federal Estate Tax exemption.  This has had a major impact on estate planning in NY.

However good this news might seem, there is a danger lurking inside these new changes.  Should and estate be valued above 105% of the amounts set forth above, e.g. in 2015 above $3,281,250.  The ENTIRE estate is taxable and there is no exemption for the first $3,125,000.  This is known as the "cliff".

As an example, in 2014 if a decedent had an estate valued at $2,170,000, there would be an estate tax imposed by NY on the entire estate resulting in a tax of $112,400.00.  However, that estate was only $107,500.00 smaller, there would be no tax at all.

This harsh result can be avoided through many estate planning techniques such a charitable giving, e.g. if the estate in question gave a charitable contribution of $107,500.00, the entire tax could be avoided.  Estate plans should be monitored and reviewed closely to avoid unnecessary taxation.

Furthermore, the new law requires an examination of gifts made between 4/1/2014 and 1/1/2019 as any gifts made during that period are added back to the NY estate in calculating whether the estate reaches the level of estate taxation set forth above.  This is despite the fact that NY does not have any State Gift Tax imposed.  Deed transfers between parent and child which occur frequently are a common source of such gifts and there should be much though given to whether any such gifts are advisable.

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