New York Tax Planning

As 2011 begins, the one-year repeal of the federal estate tax and the generation-skipping transfer tax ends. As New York individuals get ready to file their taxes in April, and implements new tax laws in their financial planning, 2011 brings changes to the income, gift, estate and generation-skipping transfer tax statutes, including a come back on the estate tax, and generation-skipping transfer tax as it was in 2000.

In December 2010, depressed property values in New York and throughout the country, and low interest rates let individuals transfer wealth to later generations with fewer tax consequences than transfers in 2011.

In 2011, tax laws changes include:

  • Federal estate tax exemption amount to $1 million
  • Highest estate tax rate increases to 55%, with additional 5% surtax to estates over $10 million
  • Highest federal gift tax rate increases to 55%
  • Generation-skipping transfer tax rate increases to 55%
  • Generation-skipping transfer tax exemption amount to $1 million, indexed for inflation from 2001 (about $1,340,000)
  • Assets basis acquired from a decedent will be fair market value of property at date of decedent’s death

Last year in 2010, a grantor retained annuity trust (GRAT) allowed an individual to transfer appreciating assets to beneficiaries with little estate and gift tax consequences. A GRAT is an irrevocable trust. Compared to a revocable trust, once created, the grantor is not able to make changes, such as property transfers and beneficiary naming. The grantor transfers assets in exchange for the right to receive a fixed term annuity, with the balance payable to specific beneficiaries at term expiration. The interest rate is 2% currently. If the grantor lives to the end of the fixed term, the asset appreciation passes to the beneficiaries. The appreciation is free from gift and estate tax.

For 2010, in lifetime giving, the federal gift tax lifetime exclusion amount was $1 million. The gift tax rate was 35% in 2010, compared to 45% for 2009. In 2011, the highest gift tax rate is 55%. In 2011, the annual gift tax exclusion amount stays at $13,000 per donee. For individuals who used entire their lifetime exclusion and want to make more gifts above the annual exclusion amount, 2010 was the year for giving. Transfers to grandchildren and remote descendants usually are subject to generation-skipping transfer tax. The generation-skipping transfer tax was temporarily repealed in 2010.

Federal and New York tax laws may be complex, engage an experienced New York tax attorney to maximize tax savings.