The way our government taxes our estates is changing once again. This time it’s at the state level for New York domiciliaries. Similar to the federal government’s 2001 legislation, which increased the federal exemption amount in increments from 2001 through 2011, New York State enacted legislation which incrementally increases the NYS exemption amount from April 1, 2014 through January 1, 2019. The new law will increase taxes for some estates and provide a decrease for others.
To understand the changes, one should start with the exemption amount: an amount that is exempt from taxation. On the federal level, the first $5.34M of an individual’s estate is exempt (as of 2014 and adjusted for inflation). If an estate is valued under $5.34M, then no federal estate tax is due. Prior to the NYS legislation, the first $1M of a New York estate is exempt from NYS estate tax. Under the new legislation, New York raises the exemption amounts as follows:
(Date-of-Death: Exemption Amount)
Prior to April 1, 2014: $1,000,000
April 1, 2014 through March 31, 2015: $2,062,500
April 1, 2015 through March 31, 2016: $3,125,000
April 1, 2016 through March 31, 2017: $4,187,500
April 1, 2017 through January 1, 2019: $5,250,000
The increased exemption amount will relieve many moderately wealthy individuals from estate tax; however, the exemptions are quickly phased out for estates that surpass the above levels. And for estates that exceed these limits by more than 5%, the exemptions are completely phased out. The vast majority of New Yorkers will leave estates valued under these limits and will not be subject to any estate tax. For those estates exceeding the new limits, a formula is applied to calculate the tax due. Application of the formula will be covered in the second part of this blog post. For estates exceeding or expected to exceed the exemption, careful estate planning is a crucial element in minimizing tax liability and preserving assets for future generations.