Authored by: Dorothy J. Santos

A recent amendment to New York’s renunciation statute provides a new estate tax planning opportunity to owners of certain types of joint property.  A renunciation (or disclaimer) generally refers to the process of giving up an interest in another person’s property.  Renunciations are often used in the estate tax planning context to carry out the terms of an estate plan.  This recent change in the law may help owners of certain types of joint property to carry out the terms of their estate planning, thereby decreasing their estate tax liability.

Under prior law in New York, the surviving co-owner of joint property could not renounce any portion of the property allocable to amounts that he or she contributed to the property.  For example, A and B own real property jointly and A furnished all of the consideration for the property.  If B dies, A cannot renounce any of B’s interest in the property that A receives by reason of B’s death because A furnished all of the consideration for the property.

Now, under New York law, the surviving co-owner of joint property (other than bank, brokerage or other investment accounts) generally may disclaim the other’s interest in the property regardless of the portion of the property attributable to consideration furnished by the disclaiming party.  In the above example, absent special circumstances, A would be able to renounce B’s interest in the property even if A furnished all of the consideration for the property.

This change in the law may be especially helpful to married couples who have executed “disclaimer-type” Wills.  A disclaimer-type Will leaves everything to the surviving spouse and provides that any property disclaimed by the surviving spouse passes to a trust for the benefit of the family.  Such a disclaimer is made by the surviving spouse in order to make use of the predeceased spouse’s estate tax exemption (currently $5,000,000 at the federal level and $1,000,000 at the state level in New York).  The amendment to New York’s renunciation statute may help families and their tax advisors to carry out the terms of an estate plan by providing additional property with which to fund the trust, thereby increasing the use of the predeceased spouse’s estate tax exemption.

If you have any questions about the points raised herein or would like to explore how the recent change in the law may affect your estate planning, please let us know.