As we wrote here earlier this year, Governor Cuomo proposed to extend the “clawback law,” which had expired on January 1, 2019, in his fiscal year 2020 Executive Budget.  As a reminder, the clawback law pulled the value of all taxable gifts made within three years of a New York resident taxpayer’s death back into the New York resident taxpayer’s estate for New York estate tax purposes.

Since that post, the Budget was passed, with the clawback law extended to January 1, 2026.  

With this extension, we have two planning items to note:

First, even with the extension, the gifting environment remains quite favorable for taxpayers.  As we wrote here, taxpayers can still “lock in” the increased federal estate and gift tax exemption by making large lifetime gifts now, while the federal exemption is high.  The only trick now from a New York estate tax perspective is that the taxpayer still needs to survive three years after making the gifts to avoid New York estate tax on the gifted assets. 

Second, the extension places continued emphasis on estate tax allocation provisions.  Basically, New Yorkers considering large lifetime gifts should make sure their estate planning documents do not potentially cause one beneficiary to pay New York estate tax on another beneficiary’s gift. 

Consider this example:

The result above could be avoided by adapting the estate tax allocation provision to provide that any New York estate tax attributable to a lifetime gift should be allocated to the recipient of the lifetime gift.  In fact, it would make sense to condition the gift to Beneficiary A on A’s paying the New York tax, if applicable.