Four Problems with New York’s Estate Tax Laws
Attorneys help us wade through the estates of confusionBy David Levine | Reviewed by Canaan Suitt, J.D. | Last updated on October 19, 2023 Featuring practical insights from contributing attorneys L. David Clark, Jr., Marianna Moliver and Carlyn S. McCaffrey
Use these links to jump to different sections:
- 1. The New York Estate Tax Cliff
- 2. There’s No Portability Under New York Estate Tax Law
- 3. Recapture Provision on Lifetime Gifts
- 4. There Are More Generous Tax Benefits Elsewhere
- Find an Experienced Tax Lawyer
In 2014, New York’s legislature passed a tax bill that made big changes to the state estate tax laws.
Before we dig into the details, two caveats:
- The provisions below tend to apply to the wealthy, so most of us will remain unaffected.
- The second caveat comes from estate planning & probate attorney L. David Clark, Jr. “Explaining the technical stuff,” he admits, “makes clients’ eyes glaze over.”
You’ve been warned.
1. The New York Estate Tax Cliff
The first contentious provision is the so-called estate tax “cliff.” Although New York’s estate tax exclusion amount—the amount that can be excluded before taxes are assessed—rose to $6,580,000 in 2023, there is a catch.
If the taxable estate is worth more than 105 percent of that exclusion, the individual loses his or her entire tax break. So if, in 2023, your estate is worth up to $6,909,000, you pay no taxes. But if it is one dollar more, you pay tax on the entire estate, not just the overage.
“This would stand as an example in law school of how not to do things,” says Clark. “When Aunt Tillie finally understands this, she says, ‘You have to be kidding.’”
2. There’s No Portability Under New York Estate Tax Law
There’s also a difference in how the state and the feds view portability.
What is portability? In essence, it’s a transfer of tax exemptions from a deceased spouse to the surviving spouse. So, under the federal Internal Revenue Code for married couples, if one spouse dies, and the value of the estate does not require the use of all of the deceased spouse’s federal estate tax exemption, the unused exemption amount may be transferred to the surviving spouse. This means when the second spouse later dies, their exemption is their own plus what’s left over from the decedent’s exemption.
But New York’s tax system says no.
“The Internal Revenue Service (IRS) allows a portability election for federal estate tax purposes so a surviving spouse can take advantage of the deceased spouse’s unused credit amount,” says estate planning & probate attorney Marianna Moliver of Moliver Law in New York City. “But New York does not do that, and it has not been fixed.”
Clarks adds, “To my mind, [portability] is so sensible even our federal government allows it.”
3. Recapture Provision on Lifetime Gifts
Tax attorneys see other issues as well, including a recapture provision on any lifetime gift given within three years of a person’s date of death.
“This is a particularly unpleasant tax for New Yorkers,” says Carlyn S. McCaffrey, a tax and estate planning & probate attorney with McDermott Will & Emery. “People will need to approach deathbed gifts more cautiously.”
4. There Are More Generous Tax Benefits Elsewhere
Overall, says Clark, “New York is still struggling with the age-old problem of how to stem the flow of people [and tax revenue] to places like Florida” with its more generous tax benefits.
Moliver agrees that the state’s laws may motivate some wealthy people to leave New York for states with more favorable tax climates. “Having said that, none of my clients have said they will move because of this,” she says.
Find an Experienced Tax Lawyer
If you’re trying to navigate the complex world of estate tax forms in New York, be sure to consult with an experienced tax or estate planning attorney in your area for legal advice about your specific situation. Visit the Super Lawyers directory to find an attorney in your area.
For more general information on this area of law, see our tax overview.
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