The result is that the combined Federal and state estate taxes are no greater than the Federal tax would have been alone. Before the repeal of the New York State estate tax, many estate plans of New Yorkers utilized both the Federal estate tax unified credit and the state death tax credit in order to maximize the amount which could pass free of Federal estate tax. Since New Yorkers had to pay an estate tax in any event, taking advantage of the state death tax credit resulted in only a modest increase in the New York estate tax payable. However, this same planning subsequent to the repeal of the New York estate tax would cost the estate a significant amount in estate tax. Estate plans should also be reviewed to confirm that a disposition of the unified credit equivalent will take into account increases in the credit.
Residency obviously plays a key role with respect to transfer taxes.
Now that New York has repealed its gift tax, a New York donor will incur no New York gift tax for gifts made after January 1, 2000. If that same donor were to reside in Connecticut, the gift tax cost could be a disincentive to making the gift. New Yorkers can now make gifts utilizing their Federal unified credit equivalent free of gift tax. Individuals who have made lifetime gifts in the past of their unified credit equivalent should consider whether additional gifts should be made to take into account the increase in the Federal unified credit equivalent. Now that there is no longer a New York gift tax, there will be no transfer tax reason not to do so.