Don’t move to Florida yet!

For many of you New Yorkers planning to move to Florida in order to save on New York State estate tax don’t put your houses on the market yet.

Effective April 1, 2014, New York State under the guidance of Governor Cuomo passed legislation with the goal of keeping New York State’s wealthy taxpayer moving from the State. The estate tax law does nothing though for New York’s wealthiest. That is, individuals with estates over $5,340,000.

The law will increase the annual lifetime exemptions from the current New York State amount of $1,000,000 to eventually equal that of the Federal lifetime exemption, currently at $5,340,000 with indexing in the future to keep pace with the Federal exemption. Unfortunately the New York exemption will not be equal with the Federal exemption until January 1, 2019. The exemption increases as follows:

Decedents passing April 1, 2014 through March 31, 2015 $2,062,500
Decedents passing April 1, 2015 through March 31, 2016 $3,125,000
Decedents passing April 1, 2016 through March 31, 2017 $4,187,500
Decedents passing April 1, 2017 through December 31, 2018 $5,250,000

Another problem with the New York law besides being very complicated is that it has a built in cliff. If an estate exceeds the exemption amount between 0 to 5% of the exemption, the tax savings are drastically reduced and altogether disappear for estates that exceed 105% of the exemption then in effect at the date of death.

A distinct feature missing from the New York State law is the concept of portability. Under Federal law, the excess of your lifetime exemption over your taxable estate can generally be applied to your surviving spouse’s taxable estate. This concept is missing from New York law so on larger estates additional estate planning will be necessary.

You will have to plan your gifting early under the new law. Any Federal taxable gift made within a three year window of death will be added back to the estate as though the gift were never made. The rule applies only to gifts made between April 1, 2014 and December 31, 2018 and would not apply during a time the decedent was not a New York State resident.

If you are planning your next big move with the New York State estate tax as a major contributor to your thought process, you now have one more thing to review and consider before you reach your final decision.

– Wayne Martin, Partner, CPA