There are some exceptions to this rule, notably for real property or tangible personal property located outside of New York State. Note that there is a Federal gift tax on transfers during lifetime. A donor will need to survive for at least 3 years from the date of a gift to ensure that the value of a gift avoids NY estate tax upon their death. However, the value of gifts made within 3 years before death are included when calculating the NY estate tax, thereby imposing a “de facto” gift tax on assets given away within 3 years before death. Gift Tax: There is no NY gift tax, meaning that NY taxpayers can make gifts to beneficiaries during their lifetimes without the imposition of a NY gift tax. Note that certain information must be filed with the IRS on the first spouse’s death in order to get the benefit of portability. Therefore, married New Yorkers who think they may be subject to New York’s estate tax may want to structure their estate plans so that the first spouse’s exclusion is used on the first spouse’s death while still providing the surviving spouse access to the funds during his or her lifetime. If the first spouse to die leaves all assets to the surviving spouse-whether directly under a Will or Revocable Trust or because assets are held jointly with rights of survivorship-that spouse would not use up his or her exclusion amount since there is no estate tax imposed on transfers between US citizen spouses. This means that the NY estate tax exclusion must be used by each spouse at his or her respective death if the first spouse to die does not use his or her exclusion, it is wasted. Portability is only available at the federal level (and only for gift and estate tax it does not apply to the generation-skipping transfer tax.) Portability also does not apply to the New York estate tax. In practice, this means that a surviving spouse inherits the deceased spouse’s assets and any unused portion of the deceased spouse’s estate tax exemption. Speak with your J.P. Morgan Advisor if you’re interested in discussing strategies that can help mitigate the effects of the NY cliff tax.Įstate Tax Portability: Portability is the ability for married couples to aggregate their unified gift and estate tax exemption amounts. The table below can help illustrate the impact of the NY “cliff tax” on estates valued between the threshold ($6.11 million in 2022) and 105% of that amount ($6,415,500 in 2022): Very few people understand how this works in practice. Estates whose value falls between the threshold amount and the 5% excess will be partially subject to NY estate tax. Because of this drastic drop in estate tax protection for estates over the NY threshold, the NY estate tax is often called a “cliff tax”. However, the exemption begins to phase out at values over the threshold, and if an estate is more than 5% over the threshold (which is $6,415,000 in 2022), the estate completely loses the exemption and the full value of the estate’s assets will be subject to NY estate tax. Generally, for NY estate tax purposes, if the value of assets passing to beneficiaries other than a spouse or charity is below a certain threshold ($6.11 million in 2022), the assets are fully exempt from tax and no NY estate taxes will be due. The NY estate tax is calculated quite differently from the Federal estate tax. This tax is in addition to the estate tax imposed by the Federal government. Here are some important items to think about for individuals with ties to New York State:Įstate Taxes and Calculation: New York is one of about 15 states (and the District of Columbia) that imposes a state level estate or inheritance tax on its residents (and even some non-resident property owners) at the time of death. When putting together an estate plan or any financial plan, you should consider the various different state laws that could impact the plan in addition to federal laws.
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