Return of the NY Look Back

The very large federal and New York estate tax exemptions for 2019 provide a potentially limited window of opportunity for estate tax planning. Specifically, the cumulative lifetime federal estate and gift tax exemption is $11,400,000 per person. The tax rate on gifts in excess of $11,400,000 is 40%. The lifetime exemption is scheduled to expire on December 31, 2025 (if not sooner, with a change in administration in 2020), when the exemption amount will be reduced to $5,000,000 (indexed for inflation). The New York estate tax exemption is currently $5,740,000 per person. If an individual dies with just 5% more than the New York estate tax exemption amount, the individual faces a cliff. That means that the individual will be taxed on the full value of his or her estate, not just the amount over the exemption amount. The top New York maximum marginal estate tax rate is 16%. New York does not have a gift tax.

Given the aforementioned estate tax landscape, planning for wealthy New Yorkers typically includes reducing or avoiding New York estate tax by making large gifts to loved ones during life. As of January 1, 2019, even death-bed transfers could be made to reduce the taxable estate for New York estate tax purposes, as New York's three-year gift look back expired on that date. Accordingly, gifts made within three years of death were no longer included in the decedent’s estate for New York estate tax purposes. This planning opportunity was recently lost when the 2020 New York Executive Budget was passed, which revives the three-year gift look back, thereby eliminating the value of deathbed transfers for purposes of avoiding New York estate tax. The final legislation excepts from this look back gifts made between January 1, 2019 and January 15, 2019 (the period before the retroactive proposed legislation was released).