Relates to the estate tax treatment of dispositions to surviving spouses who are not United States citizens.
Ayes (63): Adams, Addabbo, Avella, Ball, Bonacic, Boyle, Breslin, Carlucci, DeFrancisco, Diaz, Dilan, Espaillat, Farley, Felder, Flanagan, Fuschillo, Gallivan, Gianaris, Gipson, Golden, Griffo, Grisanti, Hannon, Hassell-Thomps, Hoylman, Kennedy, Klein, Krueger, Lanza, Larkin, Latimer, LaValle, Libous, Little, Marcellino, Marchione, Martins, Maziarz, Montgomery, Nozzolio, O'Brien, O'Mara, Parker, Peralta, Perkins, Ranzenhofer, Ritchie, Rivera, Robach, Sampson, Sanders, Savino, Serrano, Seward, Skelos, Smith, Squadron, Stavisky, Stewart-Cousin, Tkaczyk, Valesky, Young, Zeldin
TITLE OF BILL: An act to amend the tax law, in relation to the estate tax treatment of dispositions to surviving spouses who are not United States citizens and providing for the repeal of such provisions upon expiration thereof
This is one in a series of measures being introduced at the request of the Chief Administrative Judge upon the recommendation of her Surrogate's Court Advisory Committee.
This measure would amend the Tax Law to reduce the expense and clarify the procedure to obtain a marital deduction for a disposition to a noncitizen surviving spouse where no Federal estate tax return is required. Under § 2056(d) of the Internal Revenue Code, an estate is not entitled to a marital deduction for bequests to a non-U.S. citizen surviving spouse, unless the bequest passes to a qualified domestic trust ("QDT"), as defined in IRC § 2056A. That section provides generally that when the QDT terminates or distributes principal to the surviving spouse, a tax is imposed equal to the estate tax that would have been imposed if the value of the distributed property had been added to the original decedent's taxable estate. In essence, this ensures that the marital deduction will cause a deferral of estate tax, rather than a complete elimination, if the surviving spouse is not subject to U.S. estate tax at his or her death. However, there is no corresponding New York tax imposed on the termination of a QDT or distribution of principal from a QDT.
Because the New York estate tax imposed by Tax Law § 952 is based entirely on what the Federal state death tax credit would be if it were still in existence, it is essentially based on the size of the federal taxable estate. If a federal estate tax return is required, the taxable estate shown on that return is used in computing the New York tax. However, if no Federal estate tax return is required, then the New York estate tax is based on the taxable estate computed on a hypothetical Federal return prepared for and filed with the New York estate tax return. With the current Federal applicable exclusion amount of $5,250,000 (contrasted with the effective New York exemption of $1,000,000), there are a significant number of estates that are required to file a New York estate tax return but not a Federal estate tax return. Furthermore, for decedents dying in 2010, no estates were required to file a Federal return.
For estates required to file a New York estate tax return but not a Federal estate tax return, where the surviving spouse is not a U.S. citizen, it is necessary for all dispositions to the spouse to be via a QDT in order to qualify for the Federal marital deduction on the hypothetical Federal estate tax return and thus reduce the hypothetical Federal taxable estate and, ultimately, the New York estate tax. This requirement imposes a substantial burden on estates and non-citizen surviving spouses, inasmuch as the QDT requirements in IRC § 2055A are cumbersome and frequently require that a U.S. bank be a trustee. Because
no New York tax is imposed on the QDT termination or distributions, there is no New York purpose served by requiring the property to be placed in a QDT. In fact the QDT may be terminated and distributed to the surviving spouse almost immediately. The only consequence of the QDT requirement is the incurring of significant legal expense and administrative costs, particularly where a bank is trustee.
This measure simply provides that, if no Federal estate tax return is required, it is not necessary that a QDT be created in order to obtain, on the hypothetical Federal estate tax return, a marital deduction for a disposition to a surviving spouse who is not a U.S. citizen.
This measure, which would have no fiscal impact upon the State, would take effect immediately and apply to the estates of decedents dying on or after January 1, 2010, and shall expire and be deemed repealed July 1, 2016.
2013 Legislative History:
Senate 4851 (Sen. Bonacic) (ref to Investigations and Govt Ops) Assembly 6556 (M. of A. Weinstein) (rept ref to Ways & Means)
2012 Legislative History:
Senate 6649 (Sen. Bonacic) (Rules) Assembly 9481 (M. of A. Weinstein) (Passed)
STATE OF NEW YORK ________________________________________________________________________ 4851--A 2013-2014 Regular Sessions IN SENATE April 26, 2013 ___________Introduced by Sen. BONACIC -- (at request of the Office of Court Admin- istration) -- read twice and ordered printed, and when printed to be committed to the Committee on Investigations and Government Operations -- committee discharged, bill amended, ordered reprinted as amended and recommitted to said committee AN ACT to amend the tax law, in relation to the estate tax treatment of dispositions to surviving spouses who are not United States citizens and providing for the repeal of such provisions upon expiration there- of THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Section 951 of the tax law is amended by adding a new subsection (c) to read as follows: (C) DISPOSITION TO SURVIVING SPOUSE WHO IS NOT A UNITED STATES CITI- ZEN. IN THE CASE OF AN ESTATE WHERE A FEDERAL ESTATE TAX RETURN IS NOT REQUIRED FOR FEDERAL ESTATE TAX PURPOSES, A DISPOSITION TO A SURVIVING SPOUSE THAT WOULD QUALIFY FOR THE FEDERAL ESTATE TAX MARITAL DEDUCTION UNDER SECTION 2056 OF THE INTERNAL REVENUE CODE IF NOT FOR THE LIMITA- TION IMPOSED BY SUBSECTION (D)(1) OF SUCH SECTION SHALL NONETHELESS BE TREATED AS QUALIFYING FOR THE FEDERAL ESTATE TAX MARITAL DEDUCTION FOR PURPOSES OF COMPUTING THE TAX IMPOSED BY SECTION NINE HUNDRED FIFTY-TWO OF THIS PART, WITHOUT REQUIRING THAT SUCH DISPOSITION PASS TO THE SURVIVING SPOUSE IN A QUALIFIED DOMESTIC TRUST AS REQUIRED FOR FEDERAL PURPOSES BY INTERNAL REVENUE CODE SECTION 2056(D)(2). S 2. This act shall take effect immediately and shall apply to the estates of decedents dying on or after January 1, 2010, and shall expire and be deemed repealed July 1, 2016.EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD09834-02-3