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Recent Modifications to New York’s Estate Tax

It has been said many times that one million dollars isn’t what it used to be. Apparently, the New York State lawmakers agree!

Under current federal law, estates resulting from a decedent who passes away during 2014 with combined gross assets and prior taxable gifts exceeding $5,340,000 must file an estate tax return. Additionally, any unused portion of the $5,340,000 exemption by an estate may pass to the decedent’s surviving spouse, if applicable. As such, a married couple with a combined estate of up to $10.68 million may be able to escape estate taxes entirely. Due to the size of the single and combined thresholds, a very small percentage of estates are subject to federal estate taxes.

On the other hand, for the past several years, the estate of a decedent who was a resident of New York State was potentially subject to estate taxes if the value of the gross estate exceeded $1 million, with a top marginal estate tax rate of 16%. Because of the wide gap between the thresholds between the New York state exclusion and the federal exclusion, many estates not subject to federal estate taxes have had to pay New York state estate taxes. As a matter of fact, we at AllSquare Wealth have found that state estate tax planning has often been an overlooked component of the overall estate planning process.

Effective for state fiscal year 2014, New York State has increased the applicable exclusion amount from $1,000,000 to $2,062,500. This is excellent news for NY residents who expect to pass away with gross estates valued at between the old threshold and the new threshold amounts. However, due to an estate tax “cliff” which has been created under the new law, it is possible that certain larger estates will face a higher estate tax burden going forward. This has to do with the fact that the estate tax credit based on the new exclusion amount fully phases out for estates with values greater than 105% of the exclusion amount, or $2,165,625, thereby effectively taxing every dollar of the estate. Additionally, unused NYS applicable exclusion amounts continue to not be portable to one’s surviving spouse (unlike the federal system).

While this new law reduces the number of estates that will be subject to a NY estate tax, NY residents should still carefully consider the impact of any potential future estate taxes as part of their financial planning process. Please feel welcome to contact our office to schedule a meeting to review your overall financial situation.


D_Bower

Douglas J. Bauer, President and CEO of AllSquare Wealth, began his career in the financial services industry in 1975 and is a Certified Financial Planner (CFP®) practitioner. His primary responsibilities include overseeing the direction of the firm, client development, and the servicing of existing client relationships.

As part of assisting clients with their overall wealth management needs, AllSquare Wealth offers estate planning analysis. Any need for legal work is referred out to qualified attorneys.

 

AllSquare Wealth Management is a Federally Registered Investment Advisory Firm.
AllSquare Wealth Management, LLC is a registered investment adviser.

 

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