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 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
Because the New York estate tax imposed by Tax Law §952 is based entire-
ly 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 distrib-
utions, 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 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.
None. New proposal.