USA – NEW YORK Trends and Developments Contributed by: John M Teitler, Nancy A Murphy and Constance E Shields, Teitler & Teitler LLP
Teitler & Teitler, LLP 230 Park Avenue Suite 2200 New York New York 10169 USA Tel: +1 212 997 4400 Fax: +1 212 997 4949 Email: jmteitler@teitler.com Web: www.teitler.com
Estate and Gift Tax Updates Federal and New York exemptions
New York does not allow spousal portability of unused New York estate tax exemption. The New York estate tax rate is graduated and ranges from approximately 3% to 12%. While New York does not impose a gift tax on lifetime gifts, it does add back to the gross estate the aggregate amount of taxable gifts (as defined under the federal internal revenue code) made three years prior to the decedent’s death to the extent such gifts are not included in the individual’s federal gross estate. Certain gifts may not be added back to the gross estate, including gifts made while the decedent was a non-resident, or gifts of real or tangible personal property located outside of New York when the gift was made. Gift and estate planning While the US and NY tax rates and exemptions are somewhat stable; these rates and exemptions may change depending on the fiscal philosophy of cur - rent and future administrations. Many high net worth individuals may wish to take advantage of the current gift tax exemption by making gifts outright or in trust. There are various gift and estate planning techniques to ameliorate the impact of US and NY gift and estate tax. Some of the more common techniques include the use of insurance trusts, grantor retained annuity trusts, intentionally defective grantor trusts or spousal lifetime access trusts. It should be noted that while there is a federal gift tax, the only US state that imposes a gift tax is Con - necticut.
The federal estate and gift tax exclusion amount is cur - rently approximately USD15 million. The federal gov - ernment allows a credit for the full exclusion amount regardless of the value of the decedent’s estate. In addition, the federal estate tax system includes the concept of “portability”, by which any unused federal estate tax exemption at the first spouse’s death may be transferred to the surviving spouse to shelter addi - tional assets from gift and estate tax. This means, for example, that currently if the first spouse to die has a taxable estate of USD10 million, the unused federal estate tax exemption of approximately USD5 million may be transferred to the surviving spouse and, under most circumstances, used by the surviving spouse to shelter approximately USD20 million from gift and estate tax. The federal estate and gift tax rates are graduated and range from approximately 18% to 40%. New York’s treatment of its basic estate tax exclu - sion amount differs drastically from the federal sys - tem. The New York estate tax exclusion amount is currently approximately USD7.35 million. However, the New York exemption is effectively phased out for estates that exceed the exemption amount by more than 5%, meaning that for estates that exceed this amount (approximately USD7.717 million), the entire estate is effectively subject to New York estate tax.
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