Just as New Yorkers shook off a long, hard winter, changes in the state's estate tax laws kicked in that give some Long Islanders one more reason to head to Florida, and others one less.
As of April 1, the state's exemption for tax purposes rose from $1 million to $2,062,500. The exclusion will continue to climb, rising $1,062,500 each April 1 until 2017, when it will catch up to the federal estate tax exclusion level. That level, at $5.25 million last year, rose to $5.34 million for 2014. The New York State exemption, like the federal, will eventually be indexed for inflation.
The state changes, passed with the 2014-15 budget, were intended to help stem the flow of wealthy New Yorkers moving to states with no estate tax. Because New York's tax threshold hadn't kept pace with the pre-recession rise in home values, more and more middle-income residents were subject to the tax, which has a top rate of 16 percent. There is no tax on assets passing to a surviving spouse.
"I have had many clients tell me they moved to Florida because it has no estate tax," said Ronald Fatoullah of Fatoullah & Associates, an elder-law firm in Great Neck.
Before April 1, if you died with a $2 million estate, your heirs would pay tax on $1 million -- about $99,600. If you die today, they would owe nothing. "The upper middle class benefits," said Donald Novick, founding partner of Novick & Associates in Huntington.
Lewis Roberts, 62, a recently retired physician who lives with his wife in Westhampton and owns a vacation home in Florida, believes he will pay less in taxes under the new law. He had considered moving to Florida, partly to avoid estate taxes. "This might keep me in New York, but there are other factors, like the Florida sunshine, and no state income tax," Roberts said.
But the change "falls short of relief for everybody," says Paul Hyl, an estate planning attorney at Genser, Dubow, Genser & Cona in Melville.
For New Yorkers with estates of more than $2,062,500 this year, and eventually those in excess of $5.25 million, the new law can wallop the wealthiest wallets. While the old law exempted the first $1 million from taxes, the new law eliminates all exemptions if the value of the taxable estate exceeds 105 percent of the exemption in effect that year -- making the entire estate subject to a sliding tax.
"A very small amount of 'excess value' could wind up costing an estate a huge amount in tax," said Erica Bell, an estate planning attorney with Weiss Buell & Bell in Manhattan. As little as $1 can send you over the cliff.
The new law also includes an add-back provision. Between April 1, 2014, and Jan. 1, 2019, any money "gifted" away in the three years before you die, gets added back into your estate for the purpose of calculating taxes, Hyl said.
Furthermore, there is no portability, meaning each exemption amount of a husband or wife must be used by each separately, with any unused exemption amount being lost and not transferable to the surviving spouse, explains Mitchell Cooper, trust and estates tax attorney with Spizz & Cooper in Mineola.
"Married couples whose assets could add up to a taxable amount should make sure that both spouses plan to make full use of each of their exemptions," Bell said. What seems like a huge benefit -- no tax on assets passing to a surviving spouse -- "can be a hidden burden on the next generation if all of the couple's assets get bunched up in the estate of the surviving spouse with only one exemption available," Bell says.
What to do now
1. Get help. Talk to an accountant or estate planning attorney.
2. Give. You can gift $14,000 a year to anyone. "I will go over the cliff. If I give to charity, my estate tax will be less. Florida also sounds better to me now," said Elliott Gladowsky, of the accounting firm Gladowsky & Gladowsky in Smithtown.
3. Protect heirs. One way to avoid the "cliff" is for each spouse to create a will that contains a credit shelter or bypass trust that benefits the surviving spouse, but is drafted in a manner that excludes the trust from being included in the surviving spouse's taxable estate, Cooper said.