2014 1st Quarter Economic Update and New York Estate Taxes

Happy Spring! It was a brutal winter in New York and I am finally thawing out and once again happy to be living in our great state…but more about that later.

The first quarter of 2014 was a challenging environment for equities. It felt a lot like the treadmill I just bought…there was a lot of movement but we ended more or less where we started. Most major global indices finished the quarter in positive territory. There were concerns about the turmoil in the Ukraine, economic growth in emerging market countries and less than favorable US data, which was perhaps due to the extreme weather we experienced this quarter.  All of this was tempered by our new Fed Chair, Janet Yellen, who amended her earlier comments that had increased concerns that interest rates would rise earlier than expected. Overall, it seems that investors are starting to take a more cautious approach to equities.

There is somewhat happy news for New Yorkers, who endure some of the highest tax rates in the United States. Funnily enough, as of April Fool’s Day and with the passing of the Executive Budget for 2014-2015, New York state doubled its estate tax exemption, which will rise gradually through 2019. So if you can just live that long, the New York state estate tax exemption will eventually be in conformity with the quite generous federal estate tax exemption, which is projected to be $5.9 million by then. In the meantime, the new exemption schedule is as follows:

For deaths as of April 1, 2014 and before April 1, 2015, the exemption is $2,062,500.

For deaths as of April 1, 2015 and before April 1, 2016, the exemption is $3,125,000.

For deaths as of April 1, 2016 and before April 1, 2017, the exemption is $4,187,500.

For deaths as of April 1, 2017 and before January 1, 2019, the exemption is $5,250,000.

While more people will be exempt from the state tax levy, there is an April Fool’s Day catch. Prior to April 1, 2014, all estate assets up to $1,000,000 were exempt. Under the new tax law with a current exemption level of $2,062,500, if your assets are just 5% more than $2,062,500, you will be taxed on the FULL amount, not just the amount over the exemption amount. Also, there is a new three-year look back period for taxable gifts made on or after April 1, 2014 and through December 31, 2018. There also does not seem to be a portability provision, which would allow spouses to shelter additional assets. The goal of this long overdue reform is to prevent the exodus of wealthy individuals from New York to more tax-favored states and shed New York’s unfavorable reputation for high taxes, but the law as it stands will likely not have this effect.

Please find enclosed your 1st Quarterly Portfolio Report for 2014.  If you have any questions or concerns, please call me at 518-328-8104 or email me at olivia@mussettwealth.com.

Warm regards,

Olivia A. Mussett, CFP®