A client called me last week. His mother had just passed, leaving him the Brooklyn brownstone she’d owned for fifty years. His first question wasn’t about memories or probate—it was about taxes. “Am I going to lose half the house to the government?” he asked. It’s a fear I hear often, rooted in a common misunderstanding of how property passes from one generation to the next.
His fear was unfounded. With deliberate planning, most families can pass on a home with a minimal tax burden—or none at all.
New York’s Tax Is on the Estate, Not the Heir
New York does not have an inheritance tax. An inheritance tax is levied on the beneficiary—the person receiving the asset. A handful of states still have this, but New York is not one of them.
Instead, New York has an estate tax. This tax is paid by the decedent’s estate itself, before any assets are distributed to heirs. For the vast majority of estates, the tax is zero. As of 2024, a New York resident can pass on up to $6.94 million without owing any state estate tax. If your parent’s total estate—the house, bank accounts, investments, and all other assets—is below this threshold, there will be no New York estate tax to pay.
This single fact resolves the primary anxiety for most families. The stewardship of a family home is rarely threatened by the estate tax itself. The more common, and more subtle, financial issue is capital gains.
The “Step-Up in Basis” Is Your Greatest Ally
When I advise families on generational wealth, we spend less time on the estate tax and more time on the concept of “cost basis.” The basis is, simply put, what an asset cost for tax purposes. The real tax risk isn’t in inheriting the house, but in selling it later.
Here’s how it works. Let’s say your father bought a home in Manhattan in 1985 for $200,000. That’s his cost basis. If he were to sell it today for $2 million, he would face capital gains tax on the $1.8 million profit. However, when you inherit that property, the game changes completely. Under federal and state tax law, the asset receives a “step-up in basis” to its fair market value on the date of death.
Your basis is no longer the original $200,000. It becomes $2 million. If you turn around and sell the house the next day for that same amount, your taxable gain is zero. The law effectively erases decades of appreciation for tax purposes. Stewardship.
This is precisely why the common advice to “just sign the house over to the kids” is often a disastrous financial mistake. A house given as a gift during the parent’s lifetime does not receive a step-up in basis. The child receives the parent’s original, low basis. In our example, the child who received the house as a gift would be stuck with a $1.8 million taxable gain upon selling. Inheriting it was the far more prudent path.
Prudent Planning for Larger Estates
For families whose assets exceed the exemption amount, the estate tax is a very real concern. When a significant portion of an estate’s value is tied up in real estate, it can create a liquidity problem—the need to sell the home just to pay the tax bill. This is where intentional planning becomes non-negotiable.
One of the most effective tools for this is an Irrevocable Trust. By placing the home and other assets into a properly structured trust, your parents can legally remove them from their taxable estate. When they pass away, the assets in the trust are not counted toward the $6.94 million exemption, and they pass to the beneficiaries according to the trust’s terms, outside of the probate process in Surrogate’s Court.
The person or institution managing the trust—the trustee—has a significant legal responsibility. A trustee has a fiduciary duty under New York’s Estates, Powers and Trusts Law (EPTL) §11-2.3, the Prudent Investor Act, to manage trust assets with skill and care. This is why selecting a trustee is one of the most critical decisions in the entire process. It’s not an honorary title; it is a demanding job with legal obligations.
For some, more advanced tools like a Qualified Personal Residence Trust (QPRT) might be appropriate, but these come with their own set of strict rules and timelines. The right approach depends entirely on the family’s balance sheet, their goals, and their tolerance for complexity.
The strategy for passing on a family home is not about finding a secret loophole. It is about understanding the fundamental rules of estate and tax law and making deliberate choices—often years in advance. The goal is to ensure the next generation receives the asset, not the burden.
The most productive first step is rarely a complex legal maneuver. It is an assessment of the facts. Before considering any trusts or transfers, we always begin with a “basis audit”—determining the property’s original purchase price and its current estimated market value. If you are helping manage your parents’ affairs, gathering these two numbers is the most valuable action you can take this week.
