They say nothing is certain except death and taxes, but—as estate planners know—there’s nothing particularly certain about those either, especially this year. In the month and a half since Barack Obama won re-election, the only thing wealthy New Yorkers have been sure of is that if you want to give a gift, the time to do it is before January 1. And if you want to give the gift of your co-op apartment, well, you’d better hope for a holiday miracle.
If (or more likely when) America hurtles over the fiscal cliff, one of the casualties will be the $5.1 million gift tax exemption. When the ball drops in Times Square, it will revert back to $1 million. The inheritance tax, meanwhile, will leap from 35 to 55 percent.
Attorneys and property managers say that they, and countless boards around the city, are being bombarded with requests—many of them late-breaking—to transfer apartments to trusts before the window closes. Of course, at this point it’s practically impossible to get a meeting with a co-op board, let alone secure the necessary approvals. (Assuming your board even allows such transfers—and more than a handful do not.) During the first nine months of the year, the financially prudent rushed in, now only the fools remain.
“We represent several hundred co-op or condo buildings, and we’ve never seen this many transfers taking place that must be by year end,” Eva Talel, a real estate lawyer at Stroock & Stroock & Lavan, told the Transom. “For people who want to transfer, there’s a very big financial consequence if it happens, and there’s a lot of pressure on managing agents to make it happen.”
“This impacts New Yorkers in particular, because in New York a lot of people have a big portion of their wealth tied up in their apartments,” she added. And in New York, older residents planning their estates have often lived in their apartments for decades, watching values climb from well under a million to well over it. Unfortunately, it is difficult in a uniquely New York way as well, since only in New York do people own multimillion-dollar homes over which they have limited control.
While many boards are more familiar with trust transfers than they once were—a number of residents prefer to buy with them—they’re neither quick nor easy, noted Mary Ann Rothman, the executive director of the Council of New York Cooperatives and Condominiums. Ms. Rothman told the Transom that her office has spent the last few months fielding calls from perplexed co-op dwellers, calls that continue to come despite the all-but-impossible deadline.
“For decades it’s been an estate-planning device, but it doesn’t happen at the snap of fingers,” said Ms. Rothman. “The board wants to make sure it doesn’t lose one iota of control. And of course, there are still some co-ops who won’t allow it. The kind of white-glove co-ops who want all-cash purchases, which most of the world finds rather difficult in the 21st century.”
But things might not be as dire as they seem. Whether we as a country run over the fiscal cliff or not, it’s likely that the gift tax will be higher than $1 million. Mr. Obama, who was actually responsible for raising the gift tax in the first place when he signed a piece of temporary legislation in 2010, has proposed setting it at $3.5 million, which would likely be retroactive.
This is good news, given that, even for people who live in buildings with the most accommodating co-op boards on earth, there’s another, more daunting problem with gifting an asset in late December.
“Right now you can’t get an appraisal for love or money, and that’s the case across the country,” said Steven Schanker, an estate lawyer with Schanker and Hochberg. “We’re still getting phone calls from people who want to gift, and I tell them it had better be cash.”