New York Estate Tax Trap

If your estate is under five million dollars, you probably think you have a free ride under our new estate tax law.  Not if you live in New York State.

The federal estate tax exemption, $5,250,000 for deaths in 2013, is now permanent and will rise with inflation.  New York only exempts $1,000,000.

Married couples often execute Wills setting aside the amount exempt from federal estate tax as a trust for the surviving spouse.  Practitioners call this a “credit shelter” or “bypass” trust.  It is designed so that the property in the trust is exempt from federal estate tax in the estates of both spouses, and passes to the next generation at the surviving spouse’s death free of federal estate tax.  This was a super strategy when the New York and federal exemptions were the same.

Today, the strategy can backfire.  A credit shelter trust of $5,250,000 will generate a New York tax bill of about $420,000.  For some families, this is a small price to pay for exempting so much money from the federal tax base.  For other families, the tax bite leaves an unpleasant aftertaste.

This is a good time to revisit your Wills and consider whether they are still appropriate.  Tax laws change.  Families change.  Circumstances change.  Don’t leave your heirs exposed to unpleasant surprises.  We at Silfen Law Group stand ready to offer you our expert guidance.