posted by Natalie Jackson on Uncategorized

Last month, Governor Cuomo proposed certain important tax changes in his 2014 budget.  You may find the one dealing with  gift tax (described immediately below) to be of interest, in which case you may wish to consider prompt action to deal with it.

Re-institution of Indirect Gift Tax:  The most important proposed change concerns inclusion of lifetime gifts made after March 31, 2014, by New York resident decedents in the New York estate tax base.  This amounts to a indirect re-institution of the New York gift tax, which had been abolished in years after 1999.

The Governor’s proposal, if it became law, would undo a favored planning strategy of ours for older clients who own a large amount of surplus cash or bonds which they do not need for their support.  Currently, gifts of up to $5,340,000 may be sheltered under the Federal gift and estate tax exemption and are not, as stated above, subject to New York estate tax.  A New York taxpayer who makes large lifetime gifts can therefore avoid New York estate tax by a program of taxable gifts  – – even ones made shortly before death.   Savings here can be significant: a gift of $2,500,000 can save roughly $250,000 in eventual New York estate tax.

Persons who own appreciated assets (say Apple stock bought in 1999) will not generally want to make gifts of such property because the loss of a tax basis step-up available for assets held at death (i.e., not given away during life) will cancel out any New York estate tax savings.

Changes to New York estate tax:  The Governor proposed gradually to increase the New York estate tax exemption  to $5,250,000 and to index the exemption for inflation.  Additionally, the New York estate tax rate would drop from its current maximum of 16 percent to 10 percent over the next 3 years.

Comments: Possible actions:   We have to let you know about the March 31 deadline for large gifts, even if it’s impossible to predict whether the Governor can cause his proposal to be enacted.  There is also a chance that any changes to estate taxes in New York will take a form much different from the one proposed.    We regret having to write this letter to you, because of the risk of a “false alarm,” but given the size of potential New York estate tax savings, we are constrained to do so.

Please feel free  to get in touch with us if you have any question about this memorandum.

Thank you.