A client recently came to our Manhattan office. His mother had passed, leaving him the family brownstone in Brooklyn—her only significant asset. He was worried about an “inheritance tax” wiping out his equity. His first question was direct: “Do I have to sell the house just to pay the tax?”
This is a common fear, rooted in a misunderstanding of how assets are taxed at death. New York does not have an inheritance tax. An inheritance tax is paid by the person receiving the asset. Instead, New York—like the federal government—has an estate tax, which is a tax levied on the total value of the decedent’s estate before anything is distributed to heirs.
This is more than a semantic difference. It changes the entire focus of the planning. The burden falls on the estate, not on you as the beneficiary. For many families, there may be no tax at all.
New York’s Estate Tax Exemption
The question is not whether you can afford the tax, but whether your parent’s estate is large enough to trigger it. In 2024, the New York State estate tax exemption is $6.94 million. If the total value of your parent’s taxable estate is below this amount, no New York estate tax is due.
For many New Yorkers, the family home is their largest asset, but their total estate still falls comfortably below this threshold. If your mother’s Brooklyn brownstone was worth $2 million and her other assets totaled $1 million, her $3 million estate is well under the exemption. There would be no state estate tax to pay.
The federal estate tax exemption is much higher—over $13 million per person in 2024. For most, the state-level tax is the primary consideration. The key is to get an accurate valuation of all the estate’s assets—real estate, bank accounts, investments, retirement funds—to see if the estate even approaches that $6.94 million figure.
The Tax to Watch: Capital Gains
For most families inheriting a home, the more immediate tax concern isn’t the estate tax—it’s the capital gains tax you might face if you decide to sell the property.
Here, the law provides a significant benefit known as the “step-up in basis.” When you inherit an asset, its cost basis for tax purposes is “stepped up” to its fair market value on the date of the owner’s death. Let’s say your father bought the family home for $100,000 decades ago. On the day he passes away, it’s appraised at $1.5 million. That $1.5 million becomes your new cost basis. If you sell it a month later for $1.55 million, you only owe capital gains tax on the $50,000 of appreciation that occurred after you inherited it.
This is where well-intentioned but poor planning can create a huge tax liability. A parent might think, “I’ll just gift the house to my child now to get it out of my name.” This is often a mistake. When you receive a property as a gift, you also receive the giver’s original cost basis. In the example above, you’d inherit the $100,000 basis. If you then sold the house for $1.5 million, you would face capital gains tax on a $1.4 million gain—a potentially devastating financial hit.
Inheritance, in this case, is far more tax-efficient than a lifetime gift.
Using Trusts for Stewardship and Control
For estates that do exceed the New York exemption, or for families seeking to manage the transfer of property with more intention, a trust can be a prudent vehicle. A trust is a legal structure that holds assets managed by a trustee for the benefit of others. The rules governing them are laid out in Article 7 of New York’s Estates, Powers and Trusts Law (EPTL).
There are two primary types we consider in these situations:
Irrevocable Trusts: By placing the home in a properly structured irrevocable trust, your parents can remove it from their taxable estate. The transfer is permanent—they give up ownership and control. This can be a powerful tool for reducing a large estate, but it’s a significant, irreversible step. These trusts are also a core component of long-term care planning, as they can protect the home from Medicaid estate recovery, provided the transfer was made more than five years before a Medicaid application.
Revocable Trusts: A revocable, or “living,” trust does not remove assets from the taxable estate. However, it accomplishes another critical goal: avoiding probate. Assets held in a revocable trust pass directly to the named beneficiaries outside the supervision of the Surrogate’s Court. This process is private, faster, and almost always less expensive than a formal probate proceeding. For many families, the goal isn’t tax avoidance but the efficient and seamless stewardship of a legacy.
The right strategy depends entirely on the family’s balance sheet, their goals, and their vision for the next generation. The focus should be on deliberate action, not a last-minute reaction to a tax bill.
The first step is often the simplest: calculating the estate’s approximate value and understanding the home’s original cost basis. If you are beginning to consider how a family property will be passed on, we can schedule a preliminary asset review to map out these two critical numbers and determine which tax—if any—is the real threat to the legacy.
