Madness in March?

March 14, 2014

Authored by: Stacie J. Rottenstreich and Karin Barkhorn

The term March Madness may take on new significance to New Yorkers this year. In addition to contributing to NCAA pools, New Yorkers should consider making gifts this month. Following up on prior blog post, New Yorkers may have a very small window of opportunity to take advantage of gifting significant sums of money prior to April 1, 2014. Currently New York State has no gift tax. New Yorkers can make gifts of any size to anyone without incurring any New York gift tax consequences at all. However, the gift and estate tax rules may change shortly. Governor Cuomo has proposed a change to New York’s estate and gift tax law that will require all taxable gifts made by a New York resident after March 31, 2014 to be included as part of the gross estate for purposes of calculating the New York estate tax. However, the proposal would not apply to gifts made prior to April 1, 2014.

As the law currently stands, when a New Yorker makes a gift, not only is he or she not subject to current gift tax, but the amount gifted is not pulled back into his or her estate when he or she later dies to calculate the New York State estate tax due. In other words, under the law as it now stands, New York taxpayers pay less New York State estate tax if they make lifetimes gifts rather than dying with all their assets. Under the new proposed law, the New York estate tax exemption would rise, but gifts made after April 1, 2014 would be added back into the estate of the donor for New York State estate tax purposes. The net effect of this change is that gifts in April 2014 and after would be subject to New York State estate tax to the extent that their inclusion exceeds the applicable exclusion amount at the New Yorker’s death. It would almost be like the gift would be taxed after the New Yorker’s death.

A wealthy New Yorker who has not used any of his Federal exemption amount to date could make a gift of $5,340,000 without incurring any Federal or New York State gift tax. The entire amount would be pulled back into the donor’s estate for purposes of calculating his or her Federal estate tax liability when he dies, but will not be included for purposes of calculating the donor’s New York State estate tax liability. To achieve this favorable result the gift must be completed before the end of the month.