Trusts and estates practitioners are well accustomed to responding to new developments in the law, and 2018 was no exception. The federal Tax Cuts and Jobs Act, signed into law on Dec. 22, 2017, introduced major changes to the federal lifetime estate, gift, and generation-skipping transfer (GST) taxes, as well as the income taxation of individuals, partnerships, and corporations. For trusts and estates practitioners, perhaps the most significant change is that the legislation doubled the federal lifetime estate, gift, and GST tax exemptions, which are inflation-adjusted, from $5.49 million in 2017 to $11.18 million in 2018. The federal lifetime exemption for 2019 is $11.4 million per person. On Jan. 1, 2026, the exemption will revert to the prior level of $5 million per person, adjusted for inflation since 2010.

New York’s estate tax exemption amount is not affected by the federal tax legislation. The New York exemption amount for dates of death in 2019 is $5.74 million per person. As a result of the federal tax legislation, many New York estates are subject to state estate tax but not federal estate tax. Estate planning documents often include formula dispositions that are based on the federal exemption amount and the higher federal exemption amount may affect how these documents operate, potentially triggering unanticipated New York estate tax or causing beneficiaries to receive amounts that differ from the testator’s intentions. The problem is especially acute given that the benefit of the New York exemption amount phases out and is lost entirely if the taxable estate exceeds 105 percent of the New York exemption amount. The Trusts and Estates Law Section has responded to the significant mismatch between the exemption amounts by developing legislative proposals that would adjust the New York exemption amount and modify the way that formula bequests are interpreted.

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