The State of New York imposes an estate tax upon the transfer of the New York taxable estate of every deceased individual who was a resident of New York at the time of his or her death. The tax is also imposed upon the estates of nonresidents, but only real and tangible personal property located within the State of New York are subject to taxation. The current New York estate tax law incorporates many sections of the federal estate tax law and makes certain adjustments to conform the federal law to the State's legislation. The tax is computed on the value of the New York taxable estate by applying a graduated rate structure that ranges from 2% (for New York taxable estates under $50,000) to 21% (for New York taxable estates over $10,100,000). Current New York law provides a credit allowing decedents dying after June 9, 1994 to leave assets valued up to $115, 000 free of New York estate tax. Under the new legislation, the credit is increased (for decedents dying on or after October 1, 1998, but prior to February 1, 2000) to enable every individual to transfer assets valued up to $300,000 free of New York estate tax.
Effective February 1, 2000, the current New York estate tax scheme is repealed and replaced with a "pick up" or "sponge" tax. What this means is that the New York estate tax will be equal to the maximum allowable federal estate tax credit for state death taxes. Thus, New York estate taxes will no longer increase the aggregate state and federal estate taxes, since the New York estate tax will offset the federal tax, dollar for dollar.
In addition, effective for gifts made on or after January 1, 2000, the new legislation repeals New York's gift tax in its entirety . Currently, the State of New York imposes a tax upon every transfer of property by gift (in excess of $10,000 per donee) by any resident. New York also taxes gifts by nonresidents of real and tangible personal property having an actual situs in New York, and of money, securities and other intangible personal property within New York employed in carrying on any business by the donor.
The current gift tax is unified with the estate tax in a manner that is similar to the federal transfer taxing scheme; i.e., the estate and gift tax provisions operate in unison to ensure that all property transferred (whether during lifetime or at death) is subject to gift or estate tax at a single graduated rate. Accordingly , the New York gift tax is currently imposed at the same graduated rate as the New York estate tax. Under current law, for gifts made after December 31, 1993, every individual may transfer assets valued up to $115,000 free of New York gift tax. Under the new legislation, the credit is increased (for gifts made on or after January 1, 1999) to enable every individual to transfer assets worth $300,000 free of New York gift tax.
The increased gift tax credit effective January 1, 1999, and the repeal of the gift tax effective January 1, 2000, provide an increased incentive for individuals to utilize gift giving as an effective estate planning technique.
The phaseout of the New York State gift and estate tax provides significant relief to New York domiciliaries. We can now plan our gift and estate structures for our New York clients consistent with federal tax exemptions without the additional price tag of a state transfer tax.
