The intersection of federal and NYS gift tax presents complex challenges for high-net-worth individuals and families. Navigating this intersection with NYS gift tax requires careful consideration, planning, and a comprehensive understanding of the complexities. Often, the most advantageous strategy involves combining lifetime gifting with specialized trusts.
While New York State has an estate tax, it is imposed only on the transfer of property at death that exceeds certain thresholds and exemptions. As a result, many wealthy individuals and families use lifetime gifts to minimize the size of their taxable estate. This is accomplished by transferring assets to a trust for the benefit of a non-family beneficiary (typically a family member), rather than leaving them in one’s personal estate at death.
This is particularly effective when the donor’s property has appreciated significantly in value over time. In addition to reducing the size of an individual’s taxable estate, such strategies also can avoid triggering capital gains taxes upon sale of the transferred assets.
However, it is important to note that New York has a 3-year lookback rule. As a result, lifetime gifts made by a New York resident are “looked back” into the donor’s estate for purposes of calculating his or her New York State estate tax liability at death. This can limit the effectiveness of certain planning techniques.
Fortunately, the annual per donee NYS gift tax exclusion amount is currently $18,000, and it will be indexed for inflation in future years. Additionally, the law allows a donor to reduce the amount of his or her taxable estate by shifting wealth into grantor trusts for children and other beneficiaries.
While such techniques can significantly reduce a New York state taxable estate, they do require careful planning to avoid potential adverse tax consequences. For example, transfers of assets with a low tax basis to a grantor trust may trigger capital gains taxes at the transferor’s death. This can be mitigated by retaining swap powers in the trust and swapping high basis assets (i.e., those with a low tax basis in comparison to their current fair market values) for lower basis assets.
For high-net-worth individuals and families, the interaction of federal and New York State estate and NYS gift tax regulations demands guidance. By working closely with estate planning professionals, individuals, and families can develop sophisticated strategies to reduce their NYS gift tax liabilities and preserve their legacy for loved ones.
An NYS gift tax is a federal tax that applies to the transfer of money or assets from one person to another. While a huge portion of Americans will never face NYS gift tax, it is important to understand how the process works so that you can make sure that your loved ones are not paying unnecessary taxes on gifts from you.
A taxable gift can be any amount of cash or assets that is transferred to someone else without receiving anything in return. This can be a large sum of money or a property, but it can also be something as small as a piece of jewelry. The NYS gift tax does not apply to gifts that are made between spouses or other relatives, but it is important to keep in mind that even these types of gifts can be subject to the NYS gift tax.
The NYS gift tax is intended to prevent people from bypassing their estate taxes through excessive gifting. This is why the government sets a limit on how much you can give each year. Currently, you can give up to $15,000 per recipient each year without having to pay any tax. This is not a huge number, but it should be enough to cover most common gifts. However, if you want to give a more significant gift, you will need to file for a special exemption with the IRS.
New York is unique among the 50 states in that it imposes its own estate tax. This is a tax on the value of a person’s assets at death, and it is calculated on a sliding scale based on the size of your estate. This means that the larger your estate, the higher the tax will be. However, the good news is that you can avoid paying any taxes if you leave your entire estate to your spouse.
In addition, there is a generous exemption for married couples that can be used to offset any federal estate tax liability. This provision is known as portability, and it allows the surviving spouse to use any unused federal exemptions of their deceased spouse. This makes it possible for a spouse to avoid any federal estate taxes, but it does not protect them from the New York state tax.
For this reason, it is important for New York residents to take advantage of these rules and incorporate their estate planning with the help of an experienced attorney. In order to do this, they may want to consider establishing an incomplete gift non-grantor trust (ING) or a completed gift non-grantor trust (CGNT). The goal of these types of trusts is to allow the grantor to be treated as a separate taxpayer and to locate the trust in a state that has no income tax. By doing this, the grantor can make gifts while preserving their assets for themselves and their family members. It is important to note that the 3-year lookback rule still applies, but this can be avoided by judiciously choosing trustees and committee members.
A significant amount of wealth is transferred by high-net-worth individuals and families in the form of lifetime gifts. Oftentimes, these gifts are intended to reduce the size of the decedent’s taxable estate upon death. However, these transfers require careful planning to ensure that they will benefit the decedent’s heirs while still taking advantage of any available estate and NYS gift tax exemptions.
New York law, like that of most states, allows individuals to make tax-free gifts up to a maximum of $14,000 per person each year. NYS gift tax exemption is tied to the broader federal estate and NYS gift tax exclusion and must be used at a time when it will best serve the individual’s overall financial plan. For this reason, it is important to understand how NYS gift tax rules may impact your estate and investment strategy.
In the past, many individuals used lifetime gifting to lower their taxable estates in order to avoid paying state and federal estate taxes after they died. This is not the case anymore because of a change in New York State law. Up until recently, New York required decedents to include all gifts made within three years of their death in their taxable estates. This is referred to as the three-year lookback rule or clawback rule.
Fortunately, this three-year add-back rule has been eliminated for all decedents who die on or after January 1, 2019. However, many wealthy families have not yet adjusted their planning strategies to take advantage of this change.
One popular strategy is for a person to give away assets, such as real estate and jewelry so that their estate value will be less than the New York exemption limit at the time of their death. However, this can be a risky strategy. For example, if you give away too much during your lifetime, the excess will be considered a gift back to your taxable estate and could result in substantial tax penalties.
A New York lawyer can help you plan accordingly and structure your gifts to maximize your New York State exemption while also minimizing the potential for future taxes. Moreover, the attorney can help you plan for the future with regard to both federal and state estate tax rules.
As the recent decision on the ING trust shows, navigating New York State and federal estate tax laws can be complex. Therefore, individuals and families with significant assets should seek the advice of a New York estate and NYS gift tax attorney.
Schlessel Law PLLC | Long Island Elder Law Attorney
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