New York’s estate tax scheme has remained the same for years, but that has just changed dramatically. The newly enacted state budget includes changes to estate and gift taxes that are designed to allow New York to “catch up” to the federal estate tax regime.

US residents who die in 2014 can pass up to $5.34 million to their heirs without incurring any estate tax (spouses – of either gender – are generally entitled to inherit an unlimited amount tax-free). The federal system also includes “portability”: if the surviving spouse takes certain steps, he or she can “save” the unused portion of the first spouse’s $5 million exclusion amount, thereby allowing a married couple to transfer over $10 million to their heirs estate tax-free.

Before the budget was passed, New York’s exclusion amount was $1 million per person, with no portability between spouses. Starting April 1, New York decedents will be able to exclude $2,062,500 from estate tax. Over the next four years, the exclusion amount will gradually increase until January 1, 2019, when the New York amount will be equal to the federal amount.

Along with increased exemptions, New York is mirroring federal rules with a “clawback” of gifts made in the 3 years prior to death. If you gave $500,000 to your children on January 1, 2013, and died on January 1, 2014, that $500,000 was not treated as part of your taxable estate by New York. But if you die after March 31, 2014, it will be.

New York has also added its own element of confusion to the new law. Although exclusion amounts are increasing, there’s a catch: if a taxable estate has more than 105% of the exclusion amount, the exemption completely disappears and the entire estate is taxed at a minimum of 10%.

For example, if an individual dies on August 1, 2014, with an estate valued at $2 million, the heirs will pay no state estate tax whatsoever (the $2 million is covered by the $2,062,500 exclusion amount).

But if an individual dies on the same day with an estate valued at $2,200,000 (which is 1.07% of the exclusion amount), the heirs will receive no exclusion whatsoever, and the estate will be taxed on the full $2,200,000 at a current rate of 16%. A monetary difference of less than $150,000 may lead to more than $350,000 in estate taxes!

What does all of this mean to you? Now is a good time to contact your legal advisor and schedule a review of your estate plan.