A few months ago, a client sat in my Manhattan office, worried. His parents had owned their Brooklyn brownstone since the 1970s, and its value had appreciated enormously. His primary concern wasn’t about who would inherit the property—that was clear. It was about the tax bill that would arrive alongside the grief, and whether he would be forced to sell a home that had been in his family for two generations just to pay the state.
This is a conversation I have often. The family home is rarely just an asset; it is a centerpiece of a family’s history and legacy. The goal is to pass it down as intended, without creating a financial crisis for the next generation. Stewardship of such a significant asset requires deliberate, forward-looking planning.
Understanding New York’s Estate Tax “Cliff”
First, understand the tax we are discussing. New York does not have an “inheritance tax,” which is paid by the person receiving the property. Instead, we have an estate tax, paid by the estate of the deceased before any assets are distributed. The distinction is important.
The federal estate tax exemption is high, protecting the vast majority of estates. New York’s exemption is significantly lower. As of 2024, an estate valued at more than $6.94 million is subject to state estate tax. But here is the part that surprises many families: New York has a “cliff.” If the value of the estate is more than 105% of the exemption amount, the tax is not calculated on the overage. It is calculated on the entire value of the estate, from the first dollar.
For a family whose primary asset is a highly appreciated home, exceeding this threshold is surprisingly easy. This is not a tax problem reserved for billionaires; it affects many long-time property owners in the five boroughs and surrounding counties.
Proactive Planning: Beyond a Simple Will
A Last Will and Testament directs where the house goes, but it does nothing to shield its value from the estate tax calculation. Managing the tax liability requires strategies that legally separate the asset from the estate itself—long before death occurs.
The Role of Irrevocable Trusts
One of the most effective instruments for this purpose is an irrevocable trust. When you transfer ownership of the home to a properly structured irrevocable trust, it is no longer legally yours. Upon your death, it is not included in your taxable estate. This can be a powerful way to move a high-value asset off the estate’s ledger and protect it for your beneficiaries.
This strategy, however, comes with significant trade-offs. “Irrevocable” means you cannot easily undo it. You give up a substantial amount of control. You cannot, for instance, simply sell the house and keep the proceeds. The trust owns it, and the trustee—who has a strict fiduciary duty to the beneficiaries—manages it according to the terms I help you draft. This is a serious, deliberate step that requires careful consideration of your future needs.
The Complications of Gifting
Another approach people consider is gifting the property outright during their lifetime. While this removes the home from your estate, it can create a different, and sometimes worse, tax problem for your children: capital gains.
When you inherit property, the asset’s cost basis is “stepped up” to its fair market value at the time of death. This means if your children inherit the home and sell it immediately, there is generally little to no capital gains tax. If you gift them the house, they also inherit your original cost basis. If they later sell that Brooklyn brownstone purchased for $50,000 in 1975, they could face capital gains tax on millions of dollars in appreciation. We often find that paying a predictable estate tax is far preferable to burdening the next generation with a massive and immediate income tax event.
The Right Tool for the Right Legacy
The right instrument depends entirely on the family’s goals. For some, an irrevocable trust is the most prudent path. For others, holding the property and using life insurance to provide liquidity for the eventual tax bill makes more sense. We also look at more advanced structures like Qualified Personal Residence Trusts (QPRTs), which are specifically designed for primary residences.
The process always begins with a clear-eyed assessment of the asset’s value, the family’s long-term goals for the property, and the estate’s total potential value. New York Tax Law § 952 defines the “New York taxable estate” with precision. Understanding what is—and is not—included is the foundation of any effective plan.
Protecting a family home is about more than minimizing a tax. It is about ensuring the continuity of a legacy. It is about giving the next generation a foundation, not a burden.
The first step is to establish a clear picture of your family’s assets and the potential tax liability. If you are concerned about how your home will be treated in your estate, I invite you to schedule a confidential review of your property’s deed and a projection of your estate’s value so we can map out a prudent path forward.
