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
This article discusses some recent estate and gift tax updates and estate and succession planning topics for individuals and fiduciaries to consider. Some of the topics addressed in this article include: • estate and gift tax updates; • digital assets in estate planning; • trust innovations and variations; and • pre-nuptial agreements as an estate and succes- sion planning tool. Estate and Gift Tax Updates The United States and New York impose an annual income tax on resident individuals, trusts and estates. For US federal tax purposes, an individual’s residence is based on citizenship, holding a “Green Card” or pure day count. For New York purposes, residence is generally determined based on an individual’s domi- cile/permanent abode. An estate is a New York resi- dent if the decedent was domiciled in New York at the time of death. A trust is generally deemed to be a New York resident trust if the trust consists of prop- erty of a person domiciled in New York at the time of transfer, or if the creator of the trust was domiciled in New York at the time the trust became irrevocable, or when a trust in a last will and testament was created by a person who was domiciled in New York at the time of death. US and New York residents are taxed on worldwide income. Non-resident individuals, trusts and estates are taxed on New York-sourced income only. Importantly, a resident trust may not be subject to New York income tax if:
• all trustees are domiciled outside of New York; • all the trust corpus is located outside of New York; and • there is no New York-sourced income. Federal and New York exemptions The current federal estate and gift tax exclusion amount is approximately USD15 million. The federal govern- ment 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
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