Bill S6649-2011

Relates to the estate tax treatment of dispositions to surviving spouses who are not United States citizens

Relates to the estate tax treatment of dispositions to surviving spouses who are not United States citizens.

Details

Actions

  • Jun 21, 2012: COMMITTED TO RULES
  • May 30, 2012: ADVANCED TO THIRD READING
  • May 23, 2012: 2ND REPORT CAL.
  • May 22, 2012: 1ST REPORT CAL.859
  • Mar 8, 2012: REFERRED TO INVESTIGATIONS AND GOVERNMENT OPERATIONS

Votes

VOTE: COMMITTEE VOTE: - Investigations and Government Operations - May 22, 2012
Ayes (8): Marcellino, Alesi, Golden, Nozzolio, Zeldin, Squadron, Diaz, Peralta

Memo

BILL NUMBER:S6649               REVISED 05/24/12

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

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 $5,120,000 (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 would have no fiscal impact on the State. It would take effect immediately and shall apply to the estates of decedents dying on or after January 1, 2010.

LEGISLATIVE HISTORY:

None. New proposal.


Text

STATE OF NEW YORK ________________________________________________________________________ 6649 IN SENATE March 8, 2012 ___________
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 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 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 ARTICLE, 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 that have died on or after January 1, 2010.

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