A couple I met with recently, successful founders of a Brooklyn-based design firm, looked at their net worth—roughly $20 million. They believed their estate was safe from federal tax, and for the moment, they were right. The current federal exemption for a married couple is more than sufficient to cover their assets. But their sense of security was based on a law that is set to expire. What they hadn’t accounted for was the ticking clock.
This is a conversation I am having with many families across New York right now. The numbers involved may seem abstract, but the consequences of inaction are concrete. The decisions made—or not made—in the next two years will have generational impact.
The 2024 Federal Exemption: A Generational Opportunity
Each year, the IRS adjusts the federal estate and gift tax exemption for inflation. For 2024, that amount is $13.61 million per individual. For a married couple, this means they can collectively transfer up to $27.22 million during their lifetimes or at death without incurring federal estate or gift tax. This is, by historical standards, an incredibly high number.
I encourage clients not to see this as just a tax figure. It is a powerful tool for stewardship. It represents a clear opportunity to deliberately transfer significant wealth—a family business, real estate, a stock portfolio—to the next generation. Making a large gift now, when the exemption is high, can allow children or grandchildren to buy a home, start a business, or begin their own journey of wealth management with a significant head start, all shielded from a federal tax that can reach 40%.
This opportunity is temporary. It comes with a firm expiration date.
The Sunset Provision and New York’s Tax Cliff
The law that doubled the federal exemption, the Tax Cuts and Jobs Act of 2017, was written with a “sunset” provision. Unless Congress acts to extend it—which is far from certain—the exemption amount will be cut roughly in half on January 1, 2026. It will revert to its pre-2018 level, adjusted for inflation, which is projected to be around $7 million per person.
This pending change creates a clear planning directive: use the high exemption while it exists. The IRS has issued regulations confirming that individuals who make large gifts under the current high exemption will not have those gifts “clawed back” into their taxable estate if they die after the exemption has been reduced. This gives us a green light for proactive planning.
Complicating matters for my clients here is that while Washington is generous for the moment, Albany is not. New York has its own, separate estate tax with a much lower exemption. For 2024, the New York State estate tax exemption is $6.94 million. This creates a gap where an estate might owe nothing to the IRS but still face a substantial bill from the state.
Worse, New York’s tax law contains a “cliff.” Under New York Tax Law § 952, if the value of your taxable estate exceeds the exemption amount by more than 5%, the entire exemption is lost. You are then taxed on the entire value of the estate from the very first dollar. An estate valued at $7.3 million, for example, would not just pay tax on the amount over the $6.94 million exemption; it would owe state tax on the full $7.3 million. It is a punitive structure that makes careful planning an absolute necessity.
Prudent Strategies Before the Law Changes
Faced with a disappearing federal exemption and a punishing state tax cliff, what is a prudent family to do? The goal is to act deliberately, not hastily. For many of our clients, this involves using trust structures to make gifts that lock in the current federal exemption.
We often create and fund irrevocable trusts. By placing assets into a properly structured trust, you remove them from your taxable estate permanently. The assets can grow inside the trust, and their future appreciation is also sheltered from estate tax. For married couples, a Spousal Lifetime Access Trust (SLAT) can be a particularly effective tool. It allows one spouse to make a substantial gift into a trust for the benefit of the other spouse, using up the gifting spouse’s exemption while still allowing the family indirect access to the funds if needed. This provides a safety net while still achieving the primary goal of tax reduction.
On a smaller scale, we also implement disciplined annual gifting strategies. In 2024, you can give up to $18,000 to any number of individuals without dipping into your lifetime exemption at all. A couple with three children and six grandchildren could transfer $324,000 out of their estate this year alone through this method. Over several years, this simple technique can significantly reduce the size of a taxable estate.
The right strategy depends on a family’s specific financial picture, their tolerance for complexity, and their ultimate goals for their legacy.
Stewardship.
The planning window is open, but we can all see its closing date on the calendar. The first step is not to rush into creating a trust, but to gain clarity on your potential exposure. We typically begin by preparing a projection of a family’s federal and New York estate tax liability as it would stand on January 1, 2026. Seeing the numbers in black and white is often the catalyst for prudent, timely action.
