A Conversation I Have Often
I recently sat with a couple in our Manhattan office. They had built a successful manufacturing business from the ground up over 30 years. Their children were now involved, and the conversation turned to the future—not just of the business, but of the family’s legacy. “We’ve worked our whole lives for this,” the husband said. “We don’t want a huge portion of it going to taxes when we’re gone. What can we do now?”
Their concern is common, and it is valid. The rules governing what you pass to the next generation are not static. They change with inflation and, more importantly, with legislation. We are in a period of significant opportunity for wealth transfer. That window is scheduled to close at the end of 2025.
The 2024 Numbers and the 2026 Sunset
The IRS adjusts the federal gift and estate tax exemption for inflation each year. For 2024, that number has increased to $13.61 million for an individual, or a combined $27.22 million for a married couple. This is the amount you can transfer during your lifetime or at your death without incurring federal gift or estate tax. The annual gift exclusion—the amount you can give to any individual each year without dipping into your lifetime exemption—also rose to $18,000.
These are historically high figures, a result of the Tax Cuts and Jobs Act of 2017. But that law has a built-in expiration date. On January 1, 2026, unless Congress acts, the exemption amount will be cut roughly in half, reverting to its pre-2018 level of $5 million, adjusted for inflation. It will likely settle somewhere around $7 million.
This “sunset” provision creates a clear planning imperative. Families with assets approaching or exceeding the projected 2026 threshold have a limited time to use the current, higher exemption. The IRS has confirmed it will not “claw back” gifts made under the higher exemption. This means assets transferred out of your estate now are permanently sheltered, even after the exemption amount drops.
The New York Estate Tax “Cliff”
For my clients, the federal exemption is only half the story. New York has its own, separate estate tax system with a much lower exemption—$6.94 million as of 2024. Unlike the federal system, the New York system is not portable between spouses, meaning you cannot add your deceased spouse’s unused exemption to your own.
More critically, New York’s estate tax includes a “cliff.” If the value of your taxable estate is more than 105% of the state exemption amount, you do not just pay tax on the overage. You pay tax on the entire estate, from the very first dollar. This can result in a sudden and significant tax liability for estates only slightly over the limit.
Prudent planning must account for both federal and state tax regimes. For many families, this means using trusts to move assets out of their taxable estate. Creating an irrevocable trust and funding it with gifts under the current federal exemption can protect that wealth for future generations while also reducing the estate for New York tax purposes. The trustee, acting under their fiduciary duty, then manages these assets according to the terms you established—a stewardship guided by your intentions and governed by statutes like New York’s Estates, Powers and Trusts Law (EPTL) §11-1.1.
What Should Be Done Before 2026?
The deadline is not abstract. Significant wealth transfers and trust funding take time. Valuations must be performed, documents drafted, and assets retitled. Waiting until the last quarter of 2025 could be too late.
Stewardship requires foresight. The families who successfully preserve their legacy across generations are the ones who act deliberately during these windows of opportunity. The increase in the 2024 exemption is not just a number on a tax form—it is a clear signal to review your plan.
The first step is understanding precisely where you stand. If you believe your family’s assets may be affected by the 2026 sunset, we can begin with a confidential asset review to map your current net worth against the federal and New York State exemptions. This provides the clarity needed to make prudent decisions for your family’s future.
