Alerts

Decoupling of State and Federal Estate Tax Exemption Amount

May 12, 2005

As a result of recent legislation, the amount that can pass on death free of New York State estate tax is now less than the amount that can pass free of federal estate tax. The New York estate tax exemption amount is frozen at $1 million, while the federal estate tax exemption amount is $1.5 million in 2005, and will increase to $2 million in 2006 and then to $3.5 million in 2009. For married New York residents who use the estate tax exemption amount in their estate plans (for example, by creating a credit shelter trust under their Wills and leaving the balance of the estate to the surviving spouse), using the maximum amount of their remaining federal estate tax exemption will result in the estate owing some New York estate tax on the death of the first spouse. A similar discrepancy exists in certain other states, including New Jersey (where the state estate tax exemption amount is only $675,000), and may continue to be an issue in Connecticut, depending on whether legislation is reenacted reducing the Connecticut estate tax exemption amount below the federal amount.