NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A6556A
SPONSOR: Weinstein (MS) 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 Surro-
gate'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 non-
citizen 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 adminis-
trative 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)
