EPSTEIN
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until Dad's death. Even if Mom were widowed and left the $800,000 condo to her children, her estate
would still not be subject to New York estate tax because her New York taxable estate (the condo) is
under the $2,062,500 New York exclusion in effect at her death. If widowed Mom's condo were worth
$2.062,500 and she left it to her children, her estate would owe no New York estate tax; if her condo
were worth $2,165,625 (5% more than the New York exclusion at her death), her estate would owe
5112,050 in New York estate tax — the same amount that a resident decedent would owe if her taxable
estate were over the exclusion amount by 5%.
Comments. This change for non-residents is a big deal — and means that non-resident married couples
with New York real or tangible personal property will no longer have the unhappy surprise illustrated above
at the first spouse's death. Indeed, regardless of the size of the non-resident's New York estate, if it passes
to the surviving spouse in a disposition that qualifies for the marital deduction, no New York estate tax will be
payable until the surviving spouse's death (assuming the spouse still owns that New York property at
death).' But what about once that spouse is widowed — or suppose the New York non-resident is single? Is
there a way to reduce the potential New York estate tax on that New York property, assuming its value will
likely exceed the New York exclusion in effect at that non-resident's death?
Before addressing that question, let us review a few things:
•
The New York estate tax applies to a non-resident's real or tangible personal property that is located in
New York; it does not apply to a non-resident's Intangible property."
•
"Intangible properly" refers to items such as stocks, bonds and interests in entities such as limited
liability companies and partnerships; it is deemed to "reside" with its owner.
•
The New York State Constitution bars New York from imposing estate tax on a non-resident's intangible
property (see Article XVI, § 3).
•
A "single member limited liability company" is a limited liability company (LLC) with one member; unless
that single member LLC has elected to be treated as a corporation, it is disregarded for income tax
purposes, and is effectively treated as -one" with its owner/member.
•
A Subchapter S corporation is a "pass-through" entity that passes through its income to shareholders,
and is therefore not subject to corporate-level income tax.
' Note that, in general. if the non-resident gives away New York real or tangible personal property (or intangible property
connected with a New York trade or business) within three years of death, New York will pull that property back into the
non-resident decedents New York estate.
CONFIDENTIAL — PURSUANT TO FED. R. GRIM. P. 6(e)
DB-SDNY-0 117710
CONFIDENTIAL
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•
A condominium is considered real property (unlike a cooperative apartment).
•
An Advisory Opinion from the New York State Department of Taxation and Finance is issued at the
request of the taxpayer who requested advice about the New York state tax consequences of a
proposed transaction or set of facts. Like a private letter ruling from the IRS, the opinion's holding only
applies to the taxpayer who requested it. Although it is based on an analysis of the law, regulations and
current Department policies, the opinion will not necessarily be upheld if a taxpayer litigates the issue.
Enter several Advisory Opinions dealing with non-residents, intangible property and New York estate tax:
•
TSB-A-15(1)M (May 29, 2015). Taxpayer (T), a New York resident, inquires about the following: T is
thinking about forming a single member LLC under Delaware law for the "sole purpose" of contributing
his New York condominium to the LLC and then moving to another state. T would be the sole owner of
the LLC for the rest of his life and would reside outside of New York State until his death. The LLC
would be a "disregarded entity" for income tax purposes. Would it be considered "intangible property'
for New York estate tax purposes?
What the opinion said. The analysis noted the following: a) where a corporation, partnership or trust
owns New York real property (including condominiums). cases have held that interests in such an entity
constitute intangible property; b) the New York State Constitution prohibits New York estate tax on a
nonresident's intangible property, "even if such property is located in New York State"; and c) a single
member LLC that is a disregarded entity for income tax purposes is not deemed to be separate from its
owner. Based on this analysis, T's interest in the single member LLC "would not be treated for estate
tax purposes as an intangible asset," and the condominium owned by the LLC would be treated as real