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NYS Estate Tax Changes: The Good News, and the Bad News

As of April 1st New York state doubled its estate tax exemption – the amount you can leave your heirs without paying state estate tax – and it is set to rise gradually through 2019 to eventually match the federal exemption, projected by then to be $5.9 million.  That will make estate tax planning much easier for many people, but there are still big traps in the new law to watch out for.

One such trap in New York is a new “cliff,” so called because if it is triggered you fall into NY’s estate tax abyss.

Until April 1, 2014 the amount an individual could leave to their heirs (other than a spouse) without owing NYS estate tax was $1 million.  Your estate would then pay NYS estate tax (to a 16% top rate) on the value of your assets which exceed $1 million.  As of April 1, 2014 the exemption is now $2,062,500.  That includes not only your accounts and investments, but the value of any business you own, and the death benefit payable on life insurance you own.

However, if you die with just 5% more than $2,062,500, you face a cliff. That means your estate would be taxed on its full value, not just the 5% by which your estate exceeds the $2,062,500 exemption.  Hopefully the NYS legislature will remedy this consequence soon, but until then, careful review of your will and planning documents, is essential

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