United States: New York State's New Estate & Gift Tax Rules

Last Updated: April 17 2014
Article by Moira A. Jabir

The 2014‐2015 New York State budget was recently passed and changes to the New York estate and gift tax law became effective April 1, 2014. The estate tax exemption amount has been increased from $1,000,000 to $2,062,500 for persons dying on or after April 1, 2014.

The new New York estate tax exemption schedule (i.e. the basic exclusion amount) is as follows:

  • For deaths on or after April 1, 2014 and before April 1, 2015, the exemption is $2,062,500.
  • For deaths on or after April 1, 2015 and before April 1, 2016, the exemption is $3,125,000.
  • For deaths on or after April 1, 2016 and before April 1, 2017, the exemption is $4,187,500.
  • For deaths on or after April 1, 2017 and before January 1, 2019, the exemption is $5,250,000.
  • For decedents who die on or after January 1, 2019, the exemption amount shall be $5,000,000 dollars multiplied by one plus the cost of living adjustment.

The tax imposed under this new law is computed by first determining one's New York taxable estate which is the federal gross estate reduced by the value of real or tangible personal property located outside of New York and increased by any taxable gifts of real or tangible personal property having an actual situs in New York or gifts of intangible personal property employed in a business, trade or profession carried on in New York which were made: (i) within three (3) years of the decedent's death; (ii) on or after April 1, 2014 and before Jan. 1, 2019; and (iii) only if the decedent was a resident of New York when the gift was made.

After the decedent's New York taxable estate is determined, the tax is calculated based upon reference to the tax rate schedule (tax rates range from 3.06% for estates that are not over $500,000 to $1,082,800 plus 16% for estates over $10,000,000) and reduced by the applicable credit allowed. The calculation will vary year to year based on the basic exclusion amount but operates as follows:

  1. If a decedent's New York taxable estate (as defined above) is less than or equal to the basic exclusion amount, no tax is due.
  2. If a decedent's New York taxable estate is greater than the basic exclusion amount by an amount less than or equal to five (5%) percent of the basic exclusion amount then one determines the tax due on the New York taxable estate based on the tax rate schedule. The tax is then reduced by the applicable credit allowed. The applicable credit is that amount of tax that would be due if the amount on which the tax is to be computed were equal to one minus a fraction, the numerator of which is the decedent's New York taxable estate minus the basic exclusion amount and the denominator of which is five percent of the basic exclusion amount. In other words, if a decedent's taxable estate, for a death on or after April 1, 2014 and before April 1, 2015, is $2,083,125 (i.e. 1% greater than the basic exclusion amount), the tax computed is $105,703.13 and the applicable credit is $78,622.50. The formula provides that the applicable credit is determined by the tax due if the total New York taxable estate is, based on this example, 80% of the actual New York taxable estate or $1,666,500. Therefore, if the amount on which the tax is to be computed were $1,666,500, then the applicable credit would be $78,622.50 and the net tax is $27,080.62 or $105,703.13 reduced by $78,622.50.
  3. If a decedent's New York taxable estate exceeds five (5%) percent of the basic exclusion amount then no applicable credit shall be allowed. For example if the taxable estate of a decedent, for a death on or after April 1, 2014 and before April 1, 2015, is $2,167,687.50 (i.e. 105.1% greater than the basic exclusion amount) then there is no applicable credit available to the decedent's estate and the tax is $112,215.00 (as determined by reference to the tax rate schedule).

This alert sets forth the basic changes to the New York estate and gift tax law but it is important to note that it is not all inclusive. The new tax law also impacts many other areas, such as tax elections made by Executors and Trustees, income taxes payable by beneficiaries and grantors of trusts, business interests and estate planning options. The impact of this new law, regardless of one's residency, is widespread and it is recommended that one work with their tax and estate planning advisors to determine how the new New York estate and gift tax law impacts their estate plans, estate, gift and income tax strategies and New York business interests.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Moira A. Jabir
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