Ascend Bereavement Management (ABM)

Or at least a better place. New legislation increases the estate-tax threshold. In the years to come, New Yorkers will get to pass to their heirs more of their money.

At the stroke of midnight on April 1, it became significantly cheaper for many New Yorkers to die in their home state.

As part of the budget agreement reached in Albany over the weekend, legislators resolved to begin exempting more estates from state tax, as the federal government has done since the early days of the second Bush administration. Eventually, the state’s exemption threshold will match the federal one, but not until 2019. Until then, the state exemption will steadily increase, beginning with a jump to just over $2 million beginning Tuesday. Estates worth more than $1 million left by New Yorkers who died March 31 or earlier are subject to state taxes, even as the federal exemption (which is indexed to inflation) had climbed to $5.34 million.

Ultimately, the reform will spare 90% of New York households who would have paid the tax under the old $1 million threshold. But it will not cost the state anywhere near 90% of the revenue it collects from the tax, as the majority of it comes from large estates, which are taxed at higher rates. The state’s top rate will remain 16%.

The reform will increase the threshold by $1.0625 million every year until April 1, 2017, when it will stop at $5.25 million. On Jan. 1, 2019, that number will rise to whatever the federal level is at that time, and then march in lockstep with it in subsequent years.

Reform of the estate tax was a major theme of Gov. Andrew Cuomo’s well-publicized crusade to simplify New York’s tax code. Estate tax experts call it a big step in that direction.

“For some people, things will be simpler,” said Brit Geiger, a partner at Dentons who specializes in estate planning and wealth preservation. According to Mr. Geiger, the rising threshold will spare more and more households from estate taxes.

“You’re definitely saying, ‘I’m going to have a lot less clients,’ ” said Mr. Geiger, who sees competition growing fiercer and fiercer for clients that cannot spend down their assets to a level below the exemption amount. “There will be a lot of competition for the high-end client.”

But a key discrepancy between federal and New York State tax code will still require households to do careful estate planning. Because New York State does not have what is called portability, spouses cannot automatically pass exemptions between each other the way they can on the federal level. Estate planners have found a way around that, employing something called a bypass trust. Had the state reform adopted portability, it could have obviated the need for spouses to use bypass trusts to effectively double the exemption of a married couple.

“They went halfway to real simplification here,” Mr. Geiger said.

Instruments like bypass trusts will still be utilized less frequently as the exemption threshold rises, he noted.

Crain’s New York Business by Thornton Mcenery- April 1, 2014

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LShort- owner Ascend Bereavement Management