*“Portability”
The American Taxpayer Relief Act of 2012 (ATRA 2012), made “permanent” a new concept in estate planning for married couples, ostensibly rendering traditional estate tax planning unnecessary. This concept, called “portability,” means that a surviving spouse can essentially inherit the estate tax exemption of the deceased spouse without use of “credit shelter trust” planning. As with most tax laws, however, the devil is in the details. For example, unless the surviving spouse files a timely (within nine months of death) Form 709 Estate Tax Return and complies with other requirements, the portability may be unavailable. However, an automatic six month extension of time to file the return is available to all estates, including those filing solely to elect portability, by filing Form 4768 on or before the due date of the estate tax return.
In addition, married couples will not be able to use the GSTT exemptions of both spouses if they elect to use “portability” as the means to secure their respective estate tax exemptions. Furthermore, reliance on “portability” in the context of blended families may result in unintentional disinheritances and other unpleasant consequences.
One caveat to portability is that it only applies to the Federal estate tax. New York State does not have portability. So, traditional estate tax planning for married couples using a credit shelter trust, is still necessary in New York.
If you are concerned about how your current estate and gift planning may function in light of TCJA 2017, and thereafter, then we encourage you to book a call.
New York State Estate Taxes
As of January 1, 2022 the New York State estate tax exemption is $6,110,000. However, once your estate exceeds the New York exemption by 5%, you receive no exemption at all from New York estate tax, meaning your entire estate from dollar one is subject to estate tax. New York State imposes an estate tax of up to 16%. New York State does not currently impose a gift tax. However, New York will “claw back” the value of gifts made within three years of a decedent’s death, to include the value of those gifts in the decedent’s taxable estate.
Two spouses can currently transfer $12,220,000 of property without incurring any New York estate tax by the incorporation of a credit shelter trust in their estate planning documents. An estate tax savings results because the credit shelter trust is not taxed in the estate of the first spouse to die because it is sheltered by the applicable exemption. In addition, trust assets (including any appreciation thereon) are not included in the estate of the surviving spouse. With the implementation of this strategy, all federal estate tax is deferred until the death of the second spouse, and the New York State estate tax exemption of the first spouse to die is fully utilized. If all of the assets of the first spouse to die pass to the surviving spouse, the first spouse's New York State estate tax exemption will be lost.
The funding of the credit shelter trust can be automatic or at the discretion of the surviving spouse. The tax law allows the surviving spouse up to nine (9) months after the death of the first spouse to determine whether to fund the credit shelter trust. This allows the surviving spouse to assess the circumstances at that time, such as the status of the estate tax law, size of the estate and related issues to determine whether the credit shelter trust should be funded and to what extent.
If you are a snowbird, please note, Florida does not impose an estate tax or a gift tax. However, your estate would be subject to New York State estate tax on all New York property, such as your New York house and other New York real estate.
