New York's estate tax cliff starts at 49% of the federal exemption

Oregon's $1 million exemption is a fifteenth of the federal $15 million, and New York's $7.35 million cliff start is 49% of it. For a client with a house in two states, the smaller number is the one that generates a bill.

Which state gets to use its number is a question of intent. Lawrence D. Mandelker is a New York-based partner at Venable who advises high net worth individuals. He told Financial Planning: "Very often, state estate taxes are based on a question of domicile, which is a subjective test, and it's basically the state trying to figure out where did you intend to be." He added: "If you're trying to change your domicile, you need to be very careful." Clients and advisors tend to focus more on the federal exemption than on state-level rules, Mandelker said, and advisors should routinely ask about major life changes such as buying a vacation home or relocating.

Kevin Matz is a New York-based partner and co-leader of the family office industry group at ArentFox Schiff. New York's tax authorities might try to charge state estate taxes if a person had a permanent abode in New York, he said, even without being domiciled there for more than a certain number of days. He also described a sequence where a couple lives in New York, one spouse dies, the estate tax marital deduction moves assets without tax, and the survivor later leaves the state. "If one were to plan to move out of state but were to die before actually moving, New York state estate tax would then apply to that surviving spouse," Matz said.

For clients who would otherwise land slightly over New York's exemption amount, A. Michael Wargon, a Boca Raton-based partner at Day Pitney, suggested charitable donations. "The client's options at that point are to do some gifting," Wargon said. He went on: "which they maybe wouldn't otherwise do with a higher federal threshold or consider moving to a state with no state estate tax or a higher estate tax threshold."

The account rests on interviews with three estate lawyers, and it does not report any data on how many advisors track their clients' domicile. The claim that domicile is the least documented variable in a planning file is therefore an inference from what these lawyers were asked about. In my view it is still where the work is. The federal exemption is a published figure. Where a client intended to live is a record somebody has to assemble before anyone needs it. Most states, including California, do not impose an estate tax, so for a client with one home in a no-tax state the question closes quickly. Two things would change my view: evidence that state domicile challenges on estates below $15 million are rare, or evidence that advisors already keep the abode and day-count records Mandelker and Matz describe.