New York is one of the few states that imposes a state-level inheritance or estate tax. Unlike many other states, it does not utilize a threshold for exclusion from taxation; rather, it taxes the entire value of an estate that exceeds a set amount, including considerations for the NYS gift tax.
This can provide a powerful incentive for individuals with estates valued only modestly above the threshold to pursue planning strategies that reduce their taxable estate. Unfortunately, the New York estate and NYS gift tax can be complicated and daunting for those who are not familiar with its intricacies.
Fortunately, there are several things that you can do to mitigate the impact of New York's state-level gift tax. One of the most important is to begin estate planning while you are still alive. This can help you to make a number of gifts that will not be subject to the NYS gift tax, and will therefore save you some valuable estate tax dollars.
Another good strategy is to transfer assets into a trust while you are alive. This can be done for a variety of reasons, including saving on capital gains tax and preserving privacy for heirs. You will need to work closely with your trusted advisors to ensure that the transfer of assets into a trust is properly accomplished. Finally, you should also consider using the tax-free benefits of the charitable giving deduction. This is a great way to lower your taxable estate and benefit charities that are close to your heart while considering the implications of the NYS gift tax.
When making a gift, it is very important to remember that New York has a 3-year lookback rule. This means that any gift made within three years of your death must be included in your estate for estate tax purposes. For this reason, it is very important to consult with your attorney before making any significant gifts while you are living to avoid unexpected impacts from the NYS gift tax.
Finally, you should be aware of the different exemptions that are available for the New York state-level gift and estate tax. For example, there is an exemption for transfers to "qualified charitable organizations." This includes charities, educational and cultural institutions, hospitals, and some religious groups. There is also an exemption for transfers to private foundations. However, you should be aware that qualifications for these exemptions can change over time, and it's crucial to remain informed about how these may affect the NYS gift tax.
The bottom line is that there are a variety of strategies you can use to mitigate the impact of New York's gift and estate tax. By working closely with your trusted advisors, you can take advantage of the various exemptions that are available to you and protect your family's wealth for generations to come. Being proactive and informed about the NYS gift tax will help ensure that your estate planning is as effective as possible.
The federal government imposes an NYS gift tax on all U.S. residents, but New York State does not have its own NYS gift tax. This does not mean, however, that New York residents can legally gift away as much money and property as they want. There is a significant limitation to the lifetime gift and estate tax exemption, which means that it is essential for individuals to plan ahead in order to take advantage of this benefit.
In 2024, the annual per donee NYS gift tax exclusion increased to $18,000 and is expected to increase in future years. It is important to keep in mind, however, that while this amount may be sufficient for most estates, there are other considerations. These include the taxability of the gifted asset, the recipient’s cost basis in the property, and the donor’s own holding period (which could impact the amount of capital gains taxes payable on a later sale).
It is also important to remember that the federal gift tax follows U.S. citizens wherever they go, and even nonresidents who possess a valid visa can be subject to the tax. Thus, careful planning is essential for individuals with international dealings.
The definition of a “gift” under the IRS is not as clear-cut as many people assume. In fact, a gift can be anything of value that is transferred without expecting something in return, including selling an asset for less than its fair market value or making interest-free or reduced-interest loans. It is important for a person to understand this definition because it can impact reporting requirements and the lifetime gift and estate tax exemption.
Another factor to consider is that, unlike some other states, New York does not recognize portability of a deceased spouse’s unused federal estate and NYS gift tax exemption. This is a major limitation, and couples who wish to maximize the use of their New York state exemptions should consult an experienced estate planner.
Finally, it is important for individuals to understand that they cannot simply give their IRAs and other retirement accounts to family members in order to avoid paying a federal gift tax. This is because the recipients will assume the donor’s cost basis and holding period in the assets, which can result in future capital gains taxes payable by the beneficiaries at either short- or long-term capital gain rates. A better alternative to direct gifting is the use of a qualified personal trust, which can avoid both the federal and NYS gift tax and can provide more flexibility for future growth and diversification. This is an area of complex and ever-changing tax law, so individuals should always seek the advice of a knowledgeable estate planning attorney.
Navigating the intersection of federal and New York state estate and gift taxes can be challenging for high-net-worth individuals and families. The high-stakes risks involved with transferring wealth during life (gift tax) and at death (estate tax) make precise planning essential. Having an experienced and knowledgeable international tax specialist as part of the team can be crucial, especially when considering the NYS gift tax implications.
The temporary and historically high federal estate and gift tax exemption amounts, coupled with the New York State gift and inheritance taxes, provide powerful opportunities for residents of states with higher income taxes to leverage their federal exemptions and minimize New York taxable estates. This requires careful and deliberate planning by both attorneys and tax professionals who understand the intricacies of the NYS gift tax.
As an example, an incomplete gift non-grantor trust can be a useful tool for nonresidents who own highly appreciated real estate in states. However, a key to success in this type of structure is the ability to achieve a sufficiently low-cost basis and avoid state income tax on future appreciation. A good attorney can accomplish this through a thoughtful combination of asset selection, timing, and structure, along with close coordination with financial institutions, all while considering the impact of the NYS gift tax.
Another important point is the concept of New York domicile and residency. Auditors are now warned that if a taxpayer claims a change of domicile, they must show continuous "active participation" and/or a significant investment in his or her new residence. This could include the size, value, and nature of the property, employment in the new location (e.g., home health aides, chauffeurs, etc.), and communication with customers or vendors in the new location, which can all have implications for the NYS gift tax.
In addition, if the claimant continues to own or control a business in New York, auditors will scrutinize the business for any substantial ongoing involvement and a commitment to continue day-to-day operations. Moreover, auditors may review phone and email records and other evidence to determine the taxpayer's continuing involvement, which could affect their NYS gift tax status.
Finally, if a spouse dies and leaves some or all of the estate to children or other beneficiaries, the new New York inheritance tax may apply. To avoid this, married couples should consider spousal credit shelter trusts and other techniques that take advantage of the portability provision of the federal estate tax. This is a complicated and nuanced area, and it's worth having a trusted adviser in your corner to ensure that your wishes are carried out and to minimize exposure to the NYS gift tax.
Navigating these complexities and understanding the nuances of both federal and state tax laws, including the NYS gift tax, requires a comprehensive approach and the guidance of experienced professionals. This can help ensure that high-net-worth individuals and families can protect their wealth and pass it on to future generations effectively.
Schlessel Law PLLC | Long Island Elder Law Attorney
34 Willis Ave Suite 300, Mineola, NY 11501, United States
(516) 574-9630