Currently, state inheritance and estate taxes only apply to larger transfers of wealth. The amount of the tax owed is determined by how much your estate is above a set threshold. Most states offer exemptions that allow you to transfer a certain amount tax-free. New York State has a specific NYS gift tax that is unique to the state. The rules are similar to the federal inheritance tax but do have some peculiarities.
As a result, New York residents need to understand the NYS gift tax before attempting any significant leveraged transfer of assets. Fortunately, there are ways to avoid NYS gift tax by properly structuring your estate planning.
The NYS gift tax is a progressive taxable estate tax that begins at 3 percent and rises to 16 percent once you reach the exclusion amount. If you want to reduce your taxable estate below the exclusion amount, it is imperative to use strategies that take advantage of the exemptions available to you.
One of the most effective tools available for avoiding NYS gift tax is the incomplete gift non-grantor trust (ING). This structure allows you to reduce capital gains taxes by placing low basis assets in an irrevocable trust. The ING trust is effective if the grantor retains a committee of adverse parties and the trustee is not domiciled in the state in which the trust is established.
If you do not meet these criteria, a completed gift non-grantor trust is a more viable option. This trust is effective if the grantor has not already used their annual exclusion allowance and the trustee does not live in the state in which the trust is established. However, there are other situations where the ING trust may not be appropriate.
To determine if a complete or incomplete gift non-grantor trust is right for you, it is important to discuss your personal situation with an attorney. In addition, tax laws are constantly changing, so it is essential to speak with a trusted estate planner to learn about current laws and how they may impact your goals.
A final note: Although co-op apartments are technically owned by individuals, they are considered real property from a legal perspective. This means that the heirs will be taxed just like any other real estate owner.
If you’re interested in learning more about reducing your estate by making gifts while alive, contact our team of professionals for assistance. We can help you craft a plan that will accomplish your goals and avoid any unintended consequences of transferring assets to family members.
To make an appointment with our team of experienced estate planning attorneys, please contact us or fill out the form on this page. We will get back to you promptly. We look forward to hearing from you.
In New York State, many individuals who are interested in gifting their assets to heirs often do so in order to avoid the imposition of the state’s estate tax. Unfortunately, a significant number of those who are planning to do so are unaware that federal tax law limits the amount that can be transferred without incurring tax liability. In addition, the New York 3-year lookback rules may make gifting an asset to a family member more difficult than it would otherwise be. Understanding the intricacies of the NYS gift tax is crucial for effective estate planning.
The Governor’s new proposed estate tax plan will significantly increase the rate on gifts that are above the state’s exclusion amount. The result will be that New Yorkers who make taxable gifts after March 31, 2014 will see an additional net estate tax of up to 12 percent on their assets, depending on how high the value of their gross estate is when the estate tax exemption amount is adjusted again by inflation. This underscores the importance of considering NYS gift tax implications when planning your estate.
Fortunately, there are still ways that New York residents can avoid the new state estate tax and preserve their legacy. By implementing effective estate and gift planning strategies, they can minimize the impact of the new tax law and maximize the amounts that will be passed to their heirs. Being aware of NYS gift tax regulations can help in crafting these strategies.
One strategy involves an incomplete gift non-grantor trust. These trusts are ideal for people who live in states with high income taxes such as New York, and have highly appreciated assets that have a low cost basis. In these cases, it is important to limit the grantor’s involvement in the management of the assets in order to keep them from being viewed as complete gifts for income tax purposes. The nuances of NYS gift tax should be taken into account when considering such trusts.
However, a recent Tax Court case makes the implementation of an incomplete gift non-grantor trust more challenging. In Steinberg v. Commissioner, 141 T.C. No. 8, the Tax Court overruled its earlier holding in McCord and held that an assumption of a Sec. 2035(b) tax liability could be taken into account as consideration in money or money’s worth for purposes of determining the net gift value of a transfer.
In deciding that Steinberg’s daughters’ assumption of the Sec. 2035(b) tax liability was not too speculative and therefore, should be considered as part of the net gift valuation, the Tax Court also rejected the IRS’s argument that an assumption of a Sec. 2035(b) liability was not within the ordinary course of business. This decision highlights the complexities of integrating NYS gift tax considerations into broader estate planning.
While the outcome of this decision is unclear, it appears that it will be necessary for New York residents who wish to utilize an incomplete gift non-grantor trust to ensure that the tax advisor involved in their planning understands the impact of the new proposal on their gifting strategies. It is important for a gift tax professional to stay abreast of all the latest developments in both federal and state estate and gift tax law, including NYS gift tax regulations, as well as to work with other professionals such as accountants, attorneys, and financial planners to devise the best possible strategies.
Whether you are an individual with a sizable estate or simply want to pass on assets to your children, you will need to understand the NYS gift tax laws in New York. A knowledgeable lawyer can help you with your estate planning by ensuring that your gifts comply with the state’s rules on NYS gift tax.
In addition to federal law, New York imposes its own gift and estate taxes on its residents. Its laws differ from the federal ones in several key respects, including a lack of portability. Moreover, its gift and estate tax rules are not as generous as those of the federal government.
New York’s estate and NYS gift tax is a tax on the value of property transferred by an individual during his or her lifetime. It is assessed on the basis of the donor’s taxable gift-giving history and the unused exemption amount of the deceased spouse. The unused exemption amount of the deceased spouse is “clawed back” into the donor’s taxable estate and must be used by him or her to pay the New York state estate tax on his or her death.
A revocable living trust is an excellent tool for estate planning and allows individuals to avoid paying the NYS gift tax by transferring their real estate out of their name while still alive. However, it is essential that you have legal representation when making a transfer as the IRS has a keen eye for non-arm’s-length transactions.
Another option is a qualified personal residence trust (QPRT). This allows individuals to make gifts of their home while they are living and maintain the right to remain in it. This can allow you to get a significant discount on your property tax bill while also giving your family the benefit of continuing to live in the house.
The recent “fiscal cliff” deal extended the opportunity to transfer real estate, businesses, private equity ownership, and stock portfolios out of one’s name and into trust for the benefit of loved ones for a limited time. This opportunity may not last long, so those with substantial estates should consider maximizing the use of this federal exemption amount while it is available.
While it may be tempting to make taxable gifts while you are alive, it is important to remember that such gifts will reduce your Medicaid eligibility if you need nursing home care in the future. This is because Medicaid uses means-testing to determine eligibility and will add the gift back to your gross estate for the purposes of determining your eligibility for coverage. A skilled elder law attorney can help you with the NYS gift tax laws and protect your assets while obtaining access to Medicaid coverage.
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