Is There an Inheritance Tax in New York?
I often get calls from clients—executors of a parent’s estate—who are overwhelmed by the responsibility ahead of them. They’ll have a preliminary list of assets from a home in Brooklyn, an investment portfolio, and a life insurance policy, and they’ll ask a very direct question: “How much can my siblings and I inherit before the government takes a cut?”
It’s a fair question, but it’s based on a common misconception. The beneficiaries themselves rarely pay a tax on what they receive. New York does not have an “inheritance tax,” which is a tax levied on the heir. Instead, New York—like the federal government—has an “estate tax.” This tax is paid by the estate itself, before any assets are distributed to the family. It’s a crucial distinction. The responsibility, or fiduciary duty, falls on the executor or trustee to calculate, report, and pay this tax. The net amount is what then passes to the next generation.
Thinking about it this way shifts the perspective. It’s not about what you can receive tax-free; it’s about how much of your family’s legacy can be transferred before the estate owes a tax.
The Two Tax Bills: Federal and New York State
When we analyze an estate, we are looking at two separate potential tax liabilities, each with its own exemption amount—a threshold below which no tax is due.
First is the federal estate tax. For 2024, the federal exemption is $13.61 million per person. This number is historically high, but it’s temporary. Under current law, it is scheduled to be cut roughly in half on January 1, 2026. For the vast majority of estates, the federal tax is not a current concern, though we plan for its return.
Second, and more immediately relevant for many families we represent, is the New York State estate tax. For 2024, the New York exemption is significantly lower: $6.94 million. This covers the decedent’s home, bank accounts, investments, and even certain life insurance payouts—their total taxable estate. While that may seem like a high number, for a family that has owned a Manhattan apartment or a small business for decades, it is a figure that can be reached surprisingly quickly.
The New York Estate Tax “Cliff”
This is where careful, deliberate planning becomes critical. New York’s estate tax law has a particularly unforgiving feature often called the “cliff.” Most people assume that if an estate’s value exceeds the exemption, tax is only due on the overage. That is not how it works here.
Under New York Tax Law, Article 26, if the value of the taxable estate is more than 105% of the exemption amount, the entire estate is subject to tax—from the very first dollar. The exemption effectively vanishes. An estate valued at $6.94 million would owe zero New York estate tax. But an estate valued at just over $7.28 million (105% of the exemption) would face a tax bill of over $680,000.
This cliff makes planning essential. It turns what could be a minor tax issue into a substantial financial blow, capable of forcing the sale of a family home or business simply to pay the tax bill. Stewardship.
Prudent Planning for a Generational Transfer
An executor cannot simply give away assets to get the estate value under the threshold after death. The calculation is based on the decedent’s assets at the time of their passing, plus certain gifts made during their lifetime. The work of managing this exposure must be done years, sometimes decades, in advance.
For clients whose assets are near or above the New York exemption, we don’t talk about “avoiding” tax, but about prudent management. This can involve a number of established strategies. We might consider making lifetime gifts to family members, which can reduce the future taxable estate. For others, establishing certain types of trusts—like an Irrevocable Life Insurance Trust (ILIT) to hold a large policy outside the estate, or a Spousal Lifetime Access Trust (SLAT)—can be a highly effective way to transfer wealth while maintaining some indirect benefit.
The goal is never to use a trendy or complex tool for its own sake. It is to ensure the orderly and intentional transfer of a life’s work to the next generation, with as little as possible lost to a preventable tax liability.
If you are responsible for settling a loved one’s estate or are considering how to structure your own legacy, the first step is to get a clear, unvarnished look at the numbers. We often begin the process by helping a family assemble a complete and accurate inventory of assets to determine what would be included in the estate’s value for tax purposes.
