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By John R. Merlino Jr. Esq.
Founding Attorney

Does New York State owe me a tax refund?

It isn’t often that New York estate administration attorneys come across something new and exciting in the relatively stable and unchanged world of trusts and estates law.

But a recent ruling in favor of an estate that took a novel and daring estate tax approach has turned New York estate administration practice on its ear. By applying the same arguments, many others may be entitled to “big estate tax refunds and future savings”. Opposing attorneys representing New York described the action to “overturn the state’s 2014 tax grab on the marital trust established on [a widow’s] husband’s death in 2010” as “gamesmanship”. But it worked. And it may work for others, too.

Marital trusts are generally created to take advantage of the unlimited marital deduction for federal estate tax exemption purposes.  In a common scenario, a married couple will have a marital trust so that when the first spouse dies there’s no federal estate tax due. The assets are placed in trust for the benefit of the surviving spouse and upon her/his death the trust assets are includable in the second spouse’s estate and subject to tax, if any.

“Because of the bizarre interplay of the one-year federal estate tax repeal in 2010 and the New York state estate tax laws” the groundbreaking court challenge by the surviving spouse’s estate succeeded. The first spouse died in 2010 in the one year of the federal estate tax repeal so no federal estate tax was due then—so the attorney for the widow’s estate argued if tax wasn’t due then, it could not be deferred and due later.

In a nutshell, the challenge was based on the argument that if the IRS could not tax the estate, then New York State could not tax it either. The court agreed the value of the trust in the widow’s estate didn’t have to be included in the New York estate tax and ordered the state to refund the widow’s estate over $500,000. It’s been suggested that the argument might be made by “others who filed only New York estate tax returns”.

If you need assistance with an estate planning or an estate administration matter in New York or New Jersey, the estate planning and administration expert at Merlino & Gonzalez can help. Contact us today to schedule a consultation.

From our offices in Staten Island, New York and East Brunswick, New Jersey, we represent clients throughout both states in all areas of estate planning, estate administration, and real estate law.

About the Author
John is a fierce advocate and the office guru for problem-solving and brainstorming. He guides clients through every stage of a real estate transaction from offer to contract, navigating through nerve-shattering home inspection and title clearance concerns, maintaining constant contact with lenders, conducting the actual closing, and continuing to advise clients with regard to any post-closing concerns.  John brings a practical and fair-minded approach to the process which has earned him the respect of his clients and peers.