I often meet with the children of parents who bought a Brooklyn brownstone in the 1980s. They remember a childhood in a home that cost their parents less than a new car would today. Now, that same property is worth millions. When you add in a lifetime of retirement savings and investments, their parents—who never considered themselves wealthy—have an estate that far exceeds New York’s estate tax exemption. The surprise tax bill that follows can be a devastating blow to a family legacy, forcing the sale of a home that holds generations of memories.
This scenario is far too common. Many families build their financial lives without realizing they’ve crossed a critical tax threshold. The stewardship of your legacy requires looking at these issues with clear eyes—not after a death, but years before.
The Two Tax Hurdles Every New Yorker Faces
Estate tax involves two separate systems: federal and state. This is where most confusion begins. The federal government provides a very generous lifetime gift and estate tax exemption—over $13 million per person in 2024. For the vast majority of families, this means federal estate tax is not a concern.
New York, however, is different. Our state has its own estate tax with a much lower exemption threshold. For 2024, that amount is $6.94 million. While that may sound like a high number, it is surprisingly easy to exceed for those who own real estate in or around the city, run a business, or have diligently saved for retirement over a long career.
What makes the New York law particularly unforgiving is its “cliff.” If the value of your taxable estate is more than 105% of the exemption amount, you don’t just pay tax on the overage—you lose the exemption entirely and pay tax on the whole estate from the very first dollar. This is a punitive detail buried in Article 26 of the New York Tax Law, and it can have profound consequences for the assets you intend to pass to your children.
Beyond the Will: Intentional Tax Planning
A Last Will and Testament is a vital document, but it does nothing to mitigate estate taxes. A will simply tells the Surrogate’s Court who should receive your property after your debts—and taxes—are paid. True legacy planning requires a more deliberate approach, often involving trusts designed specifically to address tax exposure.
For a married couple, one of the most effective tools is a Bypass Trust, sometimes called a Credit Shelter Trust. When the first spouse passes away, assets up to the New York exemption amount are placed into this trust. The surviving spouse can benefit from the trust assets during their lifetime, but those assets are not considered part of the survivor’s estate upon their death. The result? The family gets to use the estate tax exemptions of both spouses, effectively doubling the amount that can pass to the next generation tax-free.
Another common strategy involves moving a large life insurance policy out of the taxable estate. By creating an Irrevocable Life Insurance Trust (ILIT) and making the trust the owner and beneficiary of the policy, the death benefit is paid to your heirs outside of your estate. The proceeds can provide immediate liquidity to cover taxes or other expenses without being subject to tax themselves.
Gifting: A Prudent but Cautious Approach
Another way to reduce the size of a taxable estate is through lifetime gifting. Under federal law, you can give up to a certain amount each year to as many individuals as you wish without filing a gift tax return. For 2024, that annual exclusion is $18,000. A married couple could together give $36,000 to each of their children, their children’s spouses, and their grandchildren, significantly drawing down their estate over time.
However, this strategy requires caution. I have seen people give away assets so aggressively that they were left without sufficient funds for their own long-term care needs. A prudent plan never jeopardizes your own financial security. Gifting must be part of a carefully considered, long-term strategy—not a last-minute effort to avoid taxes. It’s about being an intentional custodian of your wealth, which includes providing for yourself first.
Ultimately, addressing tax exposure is not just a financial exercise. It is a fundamental act of stewardship. By planning for these liabilities, you ensure that your life’s work is transferred to the next generation with purpose and without unnecessary diminishment. That is how a legacy endures.
A productive first step is to create a simple, honest balance sheet of your assets. Seeing the numbers on paper is often the catalyst for a more focused conversation. Once you have that, we can review it together to assess your family’s potential tax exposure and discuss the structures that might best serve your long-term goals.
