New York residents are best advised to not die before Feb. 1.
The state will become a much less expensive place to die in February. The final phase of sweeping estate tax reform legislation passed in 1997 is about to become effective.
The new law is expected to save state residents millions, and could save the heirs of a $750,000 estate $14,600, an amount large enough to cover almost four years of undergraduate tuition at a state university.
New York also repealed its gift tax on Jan. 1, making it easier for state residents to pass money to their future heirs while still alive.
The new laws simplify estate planning in New York, and eliminate the long-standing financial incentive for the state's richest residents to move to Florida or other low tax states. Legislators and Gov. George E. Pataki have made the Empire State a friendlier place to die.
"There was a disincentive for people to die in New York. It was better for people to die outside of New York for estate tax purposes," said Erie County Legislature Chairman Robin Schimminger, D-Kenmore, a supporter of the tax reform. "We want to keep our grandparents close to their children and their grandchildren. We want people to remain resided in New York."
The estate tax is only an issue for people with estates worth more than $675,000. The first $675,000 of an estate is tax free. New York's baseline for a taxable estate has been $300,000, but will rise to the federal level of $675,000 on Feb. 1.
Estates can be structured by placing $675,000 into a "credit shelter" trust when the first person in a marriage dies and then another $675,000 will be tax exempt when the surviving spouse dies, for a total exemption of $1.35 million.
The size of a tax exempt estate will gradually rise, under both state and federal tax codes, from $675,000 to $1 million by 2006.
New York is tying its estate tax rates to the federal estate tax credit, a common policy in most other states. The federal government gives taxpayers a dollar-for-dollar credit on any state death taxes paid, up to a certain cap. The cap is a sliding scale based on the size of the taxable estate.
New York residents will still pay estate taxes to Albany, but will always receive a full federal tax credit for every dollar paid. The change means a state resident's aggregate state and federal death taxes will now never exceed the amount of the federal tax levy.
New York is joining 35 other states that already (or soon will) levy estate taxes tied to the federal credit. Taxable estates will save an average of nearly 40 percent under the reformed code, according to the state Department of Taxation and Finance.
Further details can be obtained by talking to an estate-planning attorney. Now would be a good time for area residents to review their estate plans.
"You review your estate plan when the law changes, or when something about you changes, such as marriages, divorces, births, deaths, inheritances," said Bruce D. Reinoso, a partner at Magavern, Magavern & Grimm in Buffalo.
The estate tax reform will make succession planning easier for family-owned businesses. Estate taxes can be a major hit for small business owners, hindering the ability of the business to