For years, extremely wealthy New Yorkers moved out of state in order to save their heirs from being penalized with hefty estate taxes. To keep New Yorkers in the state throughout retirement, the governor proposed a new law that would change the estate tax rates for everyone. However, the governor was unable to convince state legislators to create the changes for estates of all sizes.
Currently, the extremely wealthy pay 16 percent in estate taxes when they die. The governor pushed to have this rate lowered to 10 percent, but this was shot down. Not reducing this rate means that the richest of the rich have an incentive to leave the state, especially for a state like Florida, where there is no state estate tax.
The new law also changed the threshold for estates that are exempt from state taxes. Previously estates under $1 million were exempt; however, it’s quite common to have estates this size in New York. The new threshold is $2,062,500 and it will increase by $1,062,500 each April until 2017. The number will then increase until it matches the federal exemption in 2019.
However, there are problems with the law as it’s written, say opponents. If an estate exceeds the threshold, the estate is taxed as if there weren’t any exemption at all. For instance, if an estate totals $2.5 million this year, the estate is taxed on the entire amount, not just the $437,500 over the threshold. This means there’s very little incentive for someone with a larger estate to remain in New York.
It’s also not possible for people to simply give away extra money. The law considers all gifts within three years of the death and adds them back into the estate when taxes are figured.
This new law’s complexities definitely require the help from an estate planning attorney. If you’ve had an estate plan in place, make sure that you readdress it to make sure that you’re not leaving your family open to vulnerabilities upon your death.
Source: New York Times, “Live longer and heirs will prosper in New York” Paul Sullivan, Apr. 18, 2014