Will New York Soon Have a Gift Tax?

Governor Cuomo’s recent budget proposal for New York incorporated some tax proposals made by two separate blue-ribbon panel.

A recent post by John D. Dadakis (a Partner at Holland & Knight in New York), explores the Governor’s proposal.

New York Gift Tax Changes Imminent? | Estate Planning content from WealthManagement.com

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It seems reasonable to think that Governor Cuomo would not have made any proposals in his budget which he didn’t think that a reasonable chance of becoming legislation. Time will tell, but not too much time since New York’s budget is due April 1, 2014. New York has had 3 years running of on-time budgets; expect the trend to continue.

“Irrevocable” Medicaid Trusts

The NY Estate and Wealth Planning Blog has a post on medicaid planning trusts, specifically highlighting some planning points for making such irrevocable trusts “revocable” (under New York law).

Some important points:

  • Medicaid Trusts must be funded at least five years before the grantor applies for medicaid;
  • Procedures under the EPTL §7-1.9(a) for undoing the trust; and
  • Considerations for trusts with grandchildren (and other minors) as beneficiaries.

States update their April filing deadline

April 18

New York state has announced that is respecting the federal extension return, extension and estimated filing from April 15 to April 18. While there is no legal or statutory reason for the delay, it is administratively considerate for the state to match its filing deadline with the federal government.

See NYS press release here.

[Update] California will accept returns filed on April 18 as timely filed. See article here.

[Update] New Jersey announced the filing date change in December (!).

[Update] Connecticut also will follow the April 18 date.

[Update] Massachusetts will accept returns through April 19; from their website:

In Massachusetts, April 18, 2011 is Patriot’s Day, a legal holiday in the Commonwealth. Massachusetts returns and payments normally due on April 15 will be treated as timely filed if they are filed on or before April 19, 2011.

NY Resident Trust – all trusts must now file NYS tax returns

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Before 2010, NY Resident Trusts which were exempt from taxation in NY did not have to file NY income tax returns.

NYS recently released Advisory Opinion TSB-M-10(5)I (see Opinion here) in which it changed its policy regarding NY Resident Trust filing requirements. NY fiduciary income tax returns are now required if the trust is required to file a federal income tax return.

In addition, the Opinion introduced a new Form IT-205-C:

Resident trusts that are not subject to tax under the conditions of section 605(b)(3)(D) of the Tax Law, but are required to file Form IT-205, will also be required to complete and attach new Form IT-205-C, New York State Resident Trust Nontaxable Certification, to Form IT-205.

The filing requirement and Certification do not change the tax-exempt status of the trusts, but presumably will allow the state Department of Revenue do two things:

  1. Get a handle on trusts that claim tax-exempt status (and allow the state to sample and test those trusts’ claims; and
  2. Quantify the amount of income earned by those trusts (speculations alert: with an eye to eliminating the exemption in the future).

NY Resident Trust – when no longer taxable in New York

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Once a resident trust, always a resident trust. Nevertheless, NYS law exempts some resident trusts from taxation in New York. The trust is exempt if it meets the three requirements of §605(b)(3)(D)(i). [More on these rules to follow in another post.]

NYS recently advised (see Opinion TSB-A-10(4)I here) on the method of reporting income during the year when the three conditions are met. The relevant portion of the Advisory Opinion is here:

Once a resident trust satisfies the conditions in Tax Law section 605(b)(3)(D)(i), it is no longer subject to further taxation by New York State so long as the trustee remains a non-domiciliary and the trust continues to meet the other conditions in section 605(b)(3)(D)(i). The Trusts must, however, accrue to the period of their taxable residence any income, gain, loss, deduction, items of tax preference or any ordinary income portion of a lump sum distribution accruing prior to the Trusts’ change of tax status, regardless of the Trusts’ method of accounting.

[Emphasis added.]