New York has a current estate tax exemption of $5,740,000 (adjusted annually for inflation).  However, if the New York taxable estate slightly exceeds the exemption, the exemption is completely wasted and the entire estate will be taxed at rates up to 16%.  While New York does not impose a gift tax on gifts made during lifetime, the state has a “clawback” provision whereby gifts made within three years of death are included in the estate for estate tax purposes.  This clawback was set to expire at the end of 2018.  However, New York has now extended the clawback for gifts made through 2025.  Thus, clients can make gifts to reduce their New York estate to under the exemption amount, but there is the risk that those gifts will be included in the estate and thus exceed the exemption amount if the client dies within three years.

New York residents with estates that exceed the estate tax exemption (whether due to clawback or not) may wish to consider making a charitable gift at death of an amount that will reduce their estates to less than the exemption amount. For example, an estate of approximately $6,000,000, would be subject to a New York estate tax in 2019 of approximately $500,000. However, if a charitable gift of $300,000 is made at death, then the estate tax of $500,000 would be completely eliminated, for a net benefit to the family of $200,000.  If the charitable gift is drafted within the estate plan as a formula, the gift would be made only if the gift amount is less than any tax that would be imposed if no gift was made.  For more information, please contact Lisa F. Metz (lmetz@brodywilk.com).