Last year, New York State’s trusts and estates regime experienced several important developments, from landmark legislation and case law to significant regulatory guidance to several important decisions.
According to Sharon Klein, managing director of family office services and wealth strategies at Wilmington Trust, New York developments often frame similar issues in other states across the country.
Following are Klein’s picks of last year’s 10 top developments of interest to trusts and estates practitioners, which she set out in a recent New York Law Journal article, “Developments, Lessons and Reminders of 2014.”
1. Public access to surrogate’s court documents limited
New York Surrogate’s Court adopted a rule in February that limited public access to certain documents. According to Klein, only interested parties can view such items as guardianship proceedings filings, death certificates, tax returns, documents containing social security numbers, inventories of firearms and inventories of assets. Others can seek written permission of the surrogate or chief clerk to view these records. Not surprisingly, media groups oppose the new rule, asserting that court documents should be open to the public. The rule is currently under review.
2. Disposition of digital assets
The Uniform Fiduciary Access to Digital Assets Act was approved by the Uniform Law Commission, a national group that drafts laws for states’ use, on July 16. The goal of the act is to facilitate a fiduciary’s access to electronic records of a decedent on the premise that the fiduciary “steps into the shoes” of the account holder, Klein writes.
Now that the commission has approved the uniform act, state legislatures are in position to adopt it. Klein notes that several professional groups in New York are working on a New York version of the act to be introduced in the next legislative session.
3. Unitrust regime: a reminder
Under a unitrust regime, a trust can be converted to a unitrust, enabling an income beneficiary to receive a fixed 4 percent payout of the trust’s principal. Klein points out that in New York a unitrust regime can be applied retroactively, one of the few places this is possible. In most states, only prospective unitrust payments are allowed.
4. New way to calculate interest on delayed legacies
New York has enacted a law about how interest is computed on delayed legacy payments; it applies to estates of people who die on or after Dec. 20, 2014.
According to Klein, the new law says interest is automatically payable on a pecuniary legacy that is unpaid within seven months from the issuance of letters. In addition, the interest charge will be tied to the federal funds rate. And the interest charge will now be considered accounting income, meaning that its payment will carry out distributable net income and generate a deduction for the estate.
5. Divorce: lesson and reminder
New York’s Estates, Powers, and Trust Law provides that former spouses cannot receive bequests from a decedent’s estate or be nominated for fiduciary appointments, but this does not apply to the relatives of an ex-spouse. The Appellate Division affirmed this inMatter of Lewis. Klein reports that the decision has prompted professional groups to consider whether EPTL should be revised.
She writes that divorced spouses should immediately examine their planning documents to make sure they reflect their intent.
6. Note to charities: a pledge is not a contract
Public policy generally favors enforcement of charitable pledges, but in Estate of Kramer, the Kings County Surrogate’s Court in April declined to enforce a decedent’s pledge and promissory note. According to Klein, the court said a pledge was not a contract, but an offer to contract; only when the charity takes action by incurring liability does the offer become a binding obligation. The court found that the charity could not demonstrate that it had taken meaningful action relying on the pledge.
Klein says that charities should remember that they can’t assume a signature on a pledge card is enforceable absent support to establish the requisite legal relationship.
7. Recognition for children born after the death of a genetic parent
The state legislature on Nov. 21 enacted a law that clarified the circumstances under which a child born after a genetic parent’s death — say, with stored genetic material — will be considered a child of that parent for purposes of inheritance and succession.
According to Klein, for wills or trusts not created by the genetic parent, the law is effective for wills of individuals who die after Sept 1, 2014, or lifetime trusts executed after that date. The law applies regardless of date for instruments created by the genetic parent.
8. Statutory residency
Nonresident Audit Guidelines issued by the New York State Department of Taxation and Finance list factors for consideration in evaluating a taxpayer’s relationship to a dwelling, including ownership, property rights and contribution to maintenance.
Klein reports that a landmark Court of Appeals decision ruled that a taxpayer must reside in an abode; an ownership interest is not enough to conclude that it is a permanent abode. The Nonresident Audit Guidelines make clear that possession of property rights and contributing to maintenance, though important, would not by themselves establish a dwelling as a permanent abode.
9. Fiduciary income tax changes
Existing New York tax law provides that resident trusts are subject to tax on income, but under certain conditions a resident trust can be exempt from tax. The 2014–2015 Executive Budget passed by the legislature on March 31 included changes to taxation of resident trusts. The new law now taxes distributions of accumulated trust income to New York beneficiaries of exempt resident trusts.
Klein notes that while New York taxes a trust created by a New York testator or grantor, it generally does not tax trusts created by nonresidents. As a result, she says, residents of other states may want to consider creating trusts in New York.
10. Estate tax changes
The 2014–2015 Executive Budget increased the New York estate tax exclusion amount over a number of years — from $1 million to $2,062,500 for individuals who die after April 1, 2014, to $5,250,000 for individuals who die after April 1, 2017, and before Jan. 1, 2019; after that, the exclusion amount will be linked to the federal exclusion amount.
However, Klein writes, the estate tax computation contains a “cliff,” whereby estates less than or equal to the state estate tax exclusion amount will pay no tax, while the credit for taxable estates between 100% and 105% of the basic exclusion amount will be rapidly phased out and eliminated if the taxable estate exceeds 105% of the basic exclusion amount. The “cliff” can have dramatically negative tax consequences, she says.
Klein also points out that the estate tax, which applies to those who die between April 1, 2014 and March 31, 2015, could disappear after March 31 this year because no estate tax rate schedule exists for individuals who die after that date. Legislation is required to maintain the estate tax for those whose deaths occur outside the timeframe.
Finally, Klein reports, the New York gross estate of deceased residents will go up by the amount of any taxable gift made within three years of the individual’s death — on or after April 1, 2014 and before Jan. 1, 2019 — if he or she is a resident at the time of gifting and of death.
New York estate taxes can generally be deducted from federal estate tax liability, but in Klein’s view, the gifts added back appear not to be deductible under the Internal Revenue Code. This means those gifts could be subject to the full maximum 16% estate tax rate with no offsetting federal deduction.
She notes that gifts consisting of real or tangible property located outside New York cannot be added back to the gross estate, according to a clarification by the Department of Taxation and Finance.
See also: 12 more estate planning tax facts you need to know