As part of his executive budget, Governor Cuomo proposed a law change that would "unify" the New York estate and gift taxes so that taxable gifts made by a New York resident after March 31, 2014 will be included in the donor's taxable estate.
Currently, there is no New York gift tax. As of now, New Yorkers can make gifts without directly subjecting those gifts to New York estate tax. The proposal changes this by unifying the gift and estate tax (similar to the federal estate and gift tax rules) so that all taxable gifts are added back and taxed as part of the gross estate.
The good news is that as part of the proposal, the New York estate tax exemption will increase over the next five years from the current $1,000,000 to $5,250,000 (indexed for inflation) and the top rate will be lowered from 16% to 10%. For most people - those with estates under $5.25 million ($10.5 million for married couples) - the proposal will actually decrease or eliminate estate taxes. So, if you are under the federal estate tax threshold and you were planning on making taxable gifts in order to reduce your estate to factor in the $1,000,000 New York exemption, you may not have to.
But for those of you with significant estates, you could save estate taxes by making taxable gifts before the law changes, especially if you have not used your federal exemption. If you are a New York resident and you were considering making taxable gifts this year or in the near future, you may want to do so before April 1, 2014. It would also be a good idea to review your will if the law passes.
Of course, estate and gift tax planning involves far more than simply deciding whether or not to make a gift, and your overall estate plan should be reviewed. In addition, with income tax rates near or above estate tax rates, basis and other income tax planning issues as well as cash flow must be considered. We can help.
Although the new law is only at the proposal stage, you do need to know whether you should act before April 1, 2014. So, if you are considering making a taxable gift, please call us to discuss the potential ramifications, and which strategy would be best to reduce your overall estate tax.
We will continue to provide you with more information on this proposal as it becomes available. If you have any questions, please contact your Friedman LLP tax professional.