N.Y. Legislation: What Passed, What Didn't, What's Next
There was a flurry of activity on the trusts and estates front during the 2013 legislative calendar, which ended on June 21. As we gear up for 2014 activity in the 2013-14 legislative session, it is instructive to review what has passed so far, what failed to pass before the June recess, and what lies ahead.1
Tax Abatement for Apartments Held in Trust (Enacted).2 Since 1996, New York City has offered a partial property tax abatement program for cooperative apartment and condominium owners. The abatement is offered to eliminate the disparity in real property tax, which is assessed at a much higher value against those unit holders than against holders of one, two and three family homes. The abatement has periodically expired and been renewed. However, pursuant to the latest three-year renewal enacted in January 2013, the abatement would have been lost if a cooperative or condominium unit were held by a trust or in a limited liability company (LLC). The change was made to limit the abatement to primary residence holders only. However, the new law failed to recognize that many people transfer their units to trusts or LLCs as part of their estate planning or for privacy reasons. Although ownership is technically transferred, they can continue to use the units as their primary residences.
Pursuant to the new law, enacted on July 3, 2013, the abatement will not be lost if a unit is held in trust for a person otherwise eligible for the abatement. The new law does not extend the abatement to units held in LLCs. Among other comments made in its support of the proposal, the New York City Bar has recommended that the abatement be expanded to include single member LLC and legal life estate forms of ownership.
Reduced Rate of Interest for Late-Discovered Assets (Enacted).3 An executor's discovery of assets after the date prescribed for estate tax payment can result in additional estate tax liability, subject to an interest charge for late payment from the due date of the estate tax return. This includes the late discovery of abandoned property in the possession of the State Comptroller. The interest charge can be many times the tax due. The new law directs the Tax Department not to charge interest on additional estate tax liability generated by a late-discovered asset for periods in which the State Comptroller did not pay interest on the asset.
Nonprofit Revitalization Act of 2013 (Passed Both Houses and Awaiting Presentment to Governor).4 A stated purpose of this proposal is to strengthen New York law to improve governance and accountability in the nonprofit sector. It creates enhanced oversight responsibilities to ensure that boards respond to issues identified by auditors. It also adds new requirements to guard against self-dealing and mandates the adoption of written conflict of interest policies and whistleblower policies to protect those who report suspected improper conduct from retaliation. The proposal creates a new §8-1.9 in New York's Estates, Powers and Trust Law (EPTL) to make these new requirements applicable to charitable trusts. In an effort to reduce unnecessary burdens, the proposal also raises the gross revenue thresholds that trigger certain filing requirements.
Eliminate Requirement for QDOT When No Federal Return Required (Passed Both Houses and Awaiting Presentment to Governor).5 In order for a disposition to a non-U.S. citizen surviving spouse to qualify for the federal marital deduction, the disposition must pass in a Qualified Domestic Trust (QDOT). This proposal eliminates the requirement to create a QDOT if no federal return is required to be filed.
The current estate tax threshold in New York is $1 million. For estates below the federal filing threshold, the New York estate tax is based on the taxable estate computed on a pro-forma federal return. In order to qualify for the federal marital deduction on the pro-forma return, which then flows through to the New York estate tax computation, dispositions to non-U.S. citizen spouses must be in the form of QDOTs even though there is no corresponding New York tax imposed on the termination of a QDOT or a principal distribution from a QDOT. The need to create a QDOT that is not required for New York purposes results in significant unnecessary administrative burdens and legal expenses.
In essence, the proposal provides that, if a federal return is not required to be filed, it is not necessary that a disposition to a non-U.S. citizen spouse pass in a QDOT if the disposition would otherwise qualify for the federal estate tax marital deduction.
Technical Corrections to Decanting Statute (Passed Both Houses and Awaiting Presentment to Governor).6 Decanting is the mechanism whereby the trustee of an irrevocable trust can appoint the assets of that trust into a new trust with different terms. Decanting can be a tremendous tool for dealing with changed circumstances, correcting mistakes, facilitating tax benefits or optimizing a trust's administration. New York, which was the first state to enact decanting legislation in 1992, passed sweeping amendments to its statute in 2011.
Among other technical corrections that have passed both houses: