State Estate Taxes -

State Estate taxes can be a nasty surprise- especially with the disconnect between State and Federal Exclusions. Currently, the Federal Exemption stands at $12.92mm per person. 17 states have and estate or inheritance tax and it's often uncoupled from the Federal exemptions.

In New York, the state estate tax exclusion stands at $6.58mm per person- and that exclusion isn't portable with a spouse. With state estate tax rates reaching 16%, this could lead to a potentially big number.

However, planning around this tax can be complicated. Estate Planning Attorney, GEORGE BISCHOF is here to define the problem and the clients it affects, provide some context for planning and give us some ideas on how to deal with it.

George is an Estate Planning Attorney here in New York City at the WILLS AND TRUSTS FIRM (https://thewillsfirm.com/). He focuses on clients between $4 and $20mm in net worth.

Estate Tax

Federal ($12,920,000 per person) vs NYS ($6,580,000 per person)

More New Yorkers can be caught in this than they think

Real Estate can be a big issue

Linkage to Gift Tax (NYS has no gift tax)

Rates (40% Federal vs 16% State)

NYS Cliff - Established in 2014

105% Estate Tax Exclusion is where the cliff kicks in.

Graduated Tax Calculation

Goes back to dollar zero and can be a $250K+ mistake

Calculated on NYS property

NYS has floated a longer phase-out range, no progress yet

Being a City vs State Resident is irrelevant (as opposed to an income tax situation)

Portability – Federal: Yes, NYS: NO!!! (but, Credit Shelter Trusts can be a solution)

Ways to Reduce / Minimize This Tax

Using Charity and a drafting Santa Clause (a conditional formula bequest that leaves money to your preferred charity (or one chosen by your executor or trustee), but only if doing so will result in a higher after-tax estate for your beneficiaries).

Changing your residence AND domicile (and cutting NY linkages!) - See an in depth discussion on this topic with attorney MARK KLEIN - (SNOWBIRD PLANNING EPISODE)

Using Gifting to get "under the cliff amount" (but beware of 3 year look back).

Moving wealth to non-NY jurisdiction

Maximizing “portability” with Disclaimer or Credit Shelter Trust structures

Disclaimer language in wills and/or trusts

Make sure you have an independent co-trustee  

BONUS: I wrote about this topic back in 2019 and it gives some context around the planning. (The numbers have not been updated): https://frazerrice.com/blog/the-return-of-the-nys-estate-tax-cliff/

https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

 "Frazer Rice is an employee of Next Capital Management, LLC. This podcast is not investment, legal, or tax advice, nor does it reflect the opinions of Next Capital Management. Any opinions represented in the show are Frazer’s individually and not an endorsement of the guest. This podcast is for educational and entertainment purposes. It is neither investment, legal, nor tax advice and does not represent the opinions of any employers of the host or guest."