USA – NEW YORK Law and Practice Contributed by: John M. Teitler, Nancy A. Murphy and Constance E. Shields, Teitler & Teitler, LLP
5.2 Testamentary Dispositions In the US, including New York, transfers at death are governed by a combination of federal income tax rules, federal estate tax rules, and state estate tax rules. Under the Internal Revenue Code, Section 1014, most assets included in a decedent’s gross estate receive a “step-up” in income tax basis to their fair market value on the date of death. This basis step-up effectively eliminates capital gain taxes for income tax purposes. Once the assets are inherited by a beneficiary, the beneficiary receives the assets with the date of death value, and subsequent capital gains taxes are meas- ured from that new basis. 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 an insurance trust, grantor retained annuity trust, an intentionally defective grantor trust or spousal lifetime access trust. 6.2 Tax and Regulatory Constraints Generally, all planning options are influenced by fed- eral laws in the US and governed by the Internal Rev- enue Code and Regulations. However, there are state income tax rules that can change the treatment of some planning options on a state level. One of the most common planning options that is treated dif- ferently under some state laws is a strategy that can allow trust income to avoid state income taxes by using an incomplete trust in a state that does not tax trust income such as Delaware (a DING trust), Nevada (a NING trust), or Wyoming (a WING trust). States such as New York and California have enacted laws that such trusts are treated as grantor trusts for state income tax purposes effectively rendering the plan- ning useless for residents in New York and California. 6. Lifetime Succession Planning Mechanisms 6.1 Common Planning Techniques
New York has strict execution requirements for a pre- nuptial or post-nuptial agreement that individuals should discuss with an attorney prior to entering into such an agreement, and failure to meet such require- ment may render the agreement invalid. 5. Tax Treatment of Lifetime Transfers and Testamentary Dispositions 5.1 Lifetime Transfers For any lifetime transfer of property, either outright or in trust, the recipient receives the property with “carry- over” basis, which is significantly different from the rules that govern transfers at death. When there is a gift transfer, property passes for less than full and adequate consideration and the recipient receives the donor’s basis. This includes transfers of: • cash; • tangible assets; and • forgiveness of debts. In the US, the gift tax is imposed on the donor, not the recipient. Under the Internal Revenue Code, Section 2503, a donor may give up to the annual exclusion amount to an individual each year. This amount is currently USD19,000 annually and indexed for inflation. The annual exclusion amount is per donor, per recipient, so a married couple can give an individual twice the amount, or up to USD38,000, each year under the annual exclusion rules. • securities; • real estate; Additionally, each person has a unified gift and estate tax exemption that can be used either during life, or at death. Effective as of 1 January 2026, the “One Big Beautiful Bill Act” set the gift and estate tax exemp- tion at USD15 million per person, or USD30 million for a married couple. This exemption amount will be indexed for inflation in future years. For amounts transferred in that exceed the exemption, there is a federal tax at 40%. There is no state-level gift tax imposed except in Connecticut.
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