Pillsbury Winthrop Shaw Pittman

Recent changes to New York estate and income tax

By Elizabeth HW Fry and Christen Douglas

On 31 March 2014, the New York State legislature passed and governor Andrew Cuomo signed into law the New York State 2014–15 Budget Bill (the ‘New Law’), which contains a number of revisions to the New York State estate tax law and the laws governing the New York income taxation of trusts. Specifically, the New Law (1) gradually increases the New York State estate tax exemption amount over the next five years; (2) includes certain lifetime gifts as part of a decedent’s New York taxable estate; and (3) closes two perceived ‘loopholes’ in New York’s income taxation of trusts in an effort to recapture income tax that New York was losing from certain resident trusts with non-resident trustees. By increasing the estate tax exemption amount, the New Law increases the number of estates that will pass free of New York State estate tax liability. Larger estates will generally be subject to the same New York State estate tax liability as they were under the old law, unless they are required to include certain lifetime gifts as part of their taxable estates.

Under the New Law, New York State estate tax is computed using tax rates that are substantially the same as the tax rates under the old law. The highest tax bracket under the New Law is 16 per cent, the same as it was under the old law. Under both the New Law and the old law, the tentative tax due on a taxable estate more than $10.1m would equal $1,082,800 plus 16 per cent of the excess over $10.1m.

However, to increase the number of estates that pass free of New York State estate tax, the New Law provides an estate tax credit for certain estates based on a ‘basic exclusion amount’ in effect at the time of the decedent’s death. The basic exclusion amount is set to increase gradually over the next five years as follows…

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