Attempt to Avoid Estate Tax Blocked By Judge

A Brooklyn Surrogate judge rejected the petition of an heir who sought to disclaim her infant’s interest in a deceased grandparent’s estate in order to avoid a large estate tax liability. 

When Sharon Lindsay died intestate, her property went to her husband, son and daughter, Kimberly Friedman.  Lindsay left approximately $6.25 million to be shared among her immediate family members, but due to New York estate tax law, Friedman’s and her brother’s share would be subject to a $200,000 tax liability.  The share allotted to Lindsay’s husband would not be taxed because of the marital exception.

Friedman and her brother decided to allow their father inherit the entire $6 million estate tax free by renouncing their share of the estate.  Yet, the legal glitch in their tax avoidance plan was Friedman’s infant daughter, who would inherit Friedman’s share if Friedman disclaimed her own interest.  Thus, Friedman would have to renounce her share of the estate as well as her daughter’s interest to have the desired tax effect.

Although New York courts have granted the renunciation of an infant’s right to an inheritance, the court in Brooklyn held that the best interest of the child must be a determining factor.  Since it was unclear from the court record whether Friedman and her brother had an agreement with their father to share in the $6 million after all parties renounced their share, the judge was unwilling to take chances with the child’s future inheritance.  The possibilities of Friedman’s daughter obtaining no inheritance on account of her mother’s renunciation could not be ignored in order to receive a tax benefit. 

See Charisma L. Troiano, Brooklyn Judge Blocks Heir’s Attempt to Avoid N.Y. Tax on $6M Estate, Brooklyn Daily Eagle, Feb. 21, 2015.