Sharon Klein: Update: Enacted – Window to Claim Estate Tax Refunds for State Only QTIP Property Closing & a Retroactive Gift Claw-Back

Sharon Klein has provided an update to her paper “Estate of Evelyn Seiden: New York Strikes Back!”, published as part of Steve Leimberg’s Information Services Newsletter, February 2019. She writes about the 2020 NY Executive Budget passed on March 31, 2019, which enacts the proposed changes to the taxation of state-only QTIP trusts, and a retroactive gift claw back – but with a little relief. The update is as follows:

Gift Add-Back Extended, With Small Window of Exclusion

NY‘s three-year gift add-back, which expired for individuals dying on or after Jan. 1, 2019, has been extended until Jan. 1, 2026 and applies to individuals dying on or after Jan. 16, 2019. The proposal to extend the three-year gift add-back retroactively to Jan. 1 was released in the Governor’s proposed budget on Jan. 15. The final legislation excepts from the three-year add-back gifts made between Jan. 1, 2019 and Jan. 15, 2019 (the period before the retroactive proposal was released).

QTIP Property Must be Included in the Surviving Spouse’s NY Estate

The proposal to change the result in the Seiden case was enacted into law. In Seiden, a NY court found that a QTIP Trust, created for NY purposes in 2010 when the estate was not subject to federal estate tax, was not includible in the estate of the surviving spouse for NY estate tax purposes. The new law requires that QTIP property be included in the surviving spouse’s NY estate if NY previously allowed a marital deduction for that QTIP property.However, as enacted, the change applies only to estates of individuals dying on or after April 1, 2019. 

This means there should still be a window of opportunity if a QTIP trust was created in the estate of a first spouse to die, no federal return was filed, either because the first spouse died in 2010 or because the value of the first spouse’s estate was under the federal filing threshold, and the surviving spouse died before April 1, 2019.

Other states with a comparable statutory framework might have a similar result.

Download the original paper here.

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