Avoiding New York Estate Taxes
Unhitch the trailer! You do not need to move out of New York to save estate taxes.
The estate tax exemption for New York residents was $5.93 million in 2021 and, since it is indexed to inflation, it has gone up to $6.11 million for 2022. A couple may arrange their affairs, through the use of trusts and other techniques, to each take a full $6.11 million exemption. However, for New York estate tax purposes, this planning must occur before the first spouse dies.
The Federal numbers were $11.7 million for 2021 and are $12.06 million for 2022. The Federal estate tax regime includes a feature known as "portability" which means that the surviving spouse may use any unused portion of the deceased spouse's exemption provided certain conditions are met. New York does not allow for portability.
There is another major difference between New York and the Feds. When you make a gift of over $16,000 (raised from $15,000 for 2022) to a person you must report the gift to the IRS and they will subtract it from the amount you can give at death. However, New York does not have a reporting requirement for gifts.
The way to save New York taxes at death is fairly simple. We make sure that your estate is under the limit at the time of your death by previously gifting excess funds to Inheritance Protection Trusts (IPT's) for your children. These may be arranged for you to be in control or you may put them in charge. Your New York estate tax savings start at about $500,000.
Regular readers of our column will recall that these IPT's protect the inheritance you leave from your children's divorces, lawsuits and creditors and then, upon their death, the assets pass by blood (to grandchildren) instead of by marriage (to in-laws).
One caveat is that New York has a three year clawback rule -- if you die within three years of making the gift it comes back into your estate for tax purposes -- so the sooner you move the money the better.