A couple I met with recently in my Manhattan office believed they were in the clear. With a net worth of around $9 million—their home, investments, and a life insurance policy—they were well under the current federal estate tax exemption. “We don’t have to worry about the death tax,” the husband told me. What they didn’t realize is that while they were safe from the IRS, they were squarely in the sights of the New York State Department of Taxation and Finance.
This is a common and costly misunderstanding. Many New Yorkers focus on the high federal exemption ($13.61 million per person in 2024) and assume their planning is complete. New York, however, has its own estate tax with a much lower exemption threshold—currently $6.94 million. For families with significant assets, particularly real estate, failing to plan for the state-level tax can divert a substantial portion of their legacy from their heirs to Albany.
Proper stewardship requires planning for the realities on the ground. In New York, that means having a deliberate strategy that addresses both federal and state tax laws.
The New York Estate Tax “Cliff”
The critical distinction is how New York calculates its tax. Unlike the federal system, where only the amount over the exemption is taxed, New York’s system has a “cliff.” If the value of your taxable estate is more than 105% of the exemption amount, you do not just pay tax on the overage. You pay tax on the entire estate, right from the first dollar.
An estate valued at $6.94 million would owe no New York estate tax. But an estate valued at just over $7.287 million (105% of the exemption) would not pay tax on the $347,000 difference. It would be subject to tax on the full $7.287 million, resulting in a tax bill of hundreds of thousands of dollars. That small difference in valuation pushes the estate over a cliff, and the financial impact on your heirs is significant.
This is not a minor detail; it is the central challenge for many families. It makes proactive planning an economic necessity for preserving generational wealth.
Intentional Gifting as a Primary Strategy
One of the most direct ways we address the state estate tax is through a deliberate program of lifetime gifting. This is not about randomly writing checks at the end of the year. It is a structured approach to transferring wealth to the next generation on your own terms, while you are here to see them benefit from it.
For 2024, you can give up to $18,000 to any individual without filing a gift tax return. A married couple can combine their exemptions and give $36,000 per recipient. For a family with three children and six grandchildren, that’s a potential transfer of $324,000 out of the taxable estate each year. Over several years, this strategy alone can bring a family’s estate below the New York exemption threshold.
Beyond the annual exclusion, you can also make unlimited direct payments for someone else’s medical or educational expenses. Paying a grandchild’s university tuition or a family member’s hospital bill directly to the institution does not count against your annual or lifetime gift exemptions. It is a powerful—and often overlooked—way to provide for your family while reducing your future tax liability.
Using Trusts for Control and Tax Efficiency
For assets that you are not prepared to gift directly, trusts are the essential instruments of legacy stewardship. When we design a plan, we are not just moving assets around on a ledger. We are creating a structure that protects those assets and ensures they are managed according to your wishes for years, or even generations, to come.
An Irrevocable Life Insurance Trust (ILIT), for example, is designed to own a life insurance policy. By placing the policy inside the trust, the death benefit is paid to the trust beneficiaries—typically your children or grandchildren—without being included in your taxable estate. For an estate hovering near the New York exemption cliff, removing a multi-million-dollar policy can be the single most effective move to eliminate the tax bill.
In creating these trusts, we place a significant legal and ethical weight on the person or institution named as trustee. Their fiduciary duty is not a casual responsibility. It is governed by New York law, including the Prudent Investor Act as defined in EPTL § 11-2.3, which requires the trustee to manage the trust’s assets with skill and care. This legal standard is the backbone of the trust, ensuring the structure you create is managed with integrity long after you are gone.
Other trusts, such as Spousal Lifetime Access Trusts (SLATs) or Charitable Remainder Trusts (CRTs), offer different ways to move assets out of an estate while retaining some benefit or directing funds toward a philanthropic cause. The correct instrument depends entirely on the family’s specific financial picture and long-term goals.
The key is to act deliberately. The tax laws, both federal and state, are known quantities. With a clear understanding of your assets and a well-considered plan, you can take control of how your legacy is distributed, ensuring it supports your family and the causes you care about, not the state treasury.
The first step in this process is to establish a clear and comprehensive inventory of your assets. With that document in hand, we can schedule a confidential review to analyze your exposure to state and federal estate taxes and begin designing a structure that reflects your intentions for the future.
