A client came to me last week, a retired teacher from Queens. She’d saved diligently her entire life and owned her home outright. Her question was simple and direct: “After I’m gone, how much of this will my kids actually get to keep?” It’s the most common question I hear. The answer, here in New York, is not simple. It involves two entirely separate tax systems—one federal, one state.
Most families I represent are surprised to learn this. They assume a single set of rules governs inheritance. But your estate—everything you own at your passing—is appraised by both the IRS and the New York State Department of Taxation and Finance. Each has its own rulebook and, critically, its own exemption amount.
The Federal vs. New York Estate Tax Exemptions
First, let’s clear up a common misconception. The person inheriting assets does not typically pay the tax. Instead, an estate tax is levied on the deceased person’s estate before assets are distributed to the heirs. This is a tax on the transfer of wealth.
The federal government provides a very generous estate tax exemption. For 2024, an individual can pass on up to $13.61 million without paying any federal estate tax. This number is so high that for most Americans, the federal estate tax is a non-issue. A married couple can shield double that amount, over $27 million, through a concept called “portability,” where a surviving spouse can use any of their deceased spouse’s unused exemption.
New York, however, operates differently. Our state has its own estate tax system with a much lower exemption threshold. As of 2024, the New York State estate tax exemption is $6.94 million. This is a significant figure, but it is less than half the federal amount. For many families, especially those who own property in Manhattan or have built a successful business, an estate can easily exceed this limit.
The “Cliff” and Other New York Specifics
The difference in exemption amounts is not the only challenge. New York’s estate tax law contains a particularly unforgiving feature often called the “cliff.” If the value of your taxable estate is more than 105% of the $6.94 million exemption, you don’t just pay tax on the amount over the exemption. Instead, the entire exemption vanishes. The state taxes your entire estate from the very first dollar.
Stewardship. This is why careful planning is not a luxury; it’s a necessity. An estate valued at $7 million will owe a small amount of state tax. But an estate valued at just over $7.28 million (105% of the exemption) will suddenly face a tax bill of several hundred thousand dollars, calculated on the entire value.
Furthermore, unlike the federal system, New York does not recognize portability for its estate tax exemption. A surviving spouse cannot inherit their deceased spouse’s unused New York exemption. For married couples with combined assets over the state limit, this requires deliberate planning with trusts to ensure both spouses’ exemptions can be properly used. Failing to do so can result in a substantial and entirely avoidable tax liability when the second spouse passes away.
Understanding What Counts Toward Your Estate
When we calculate the value of an estate for tax purposes, we look at the full picture. It’s not just the balance of a checking account. It includes:
- Real estate (your primary home, vacation properties)
- Investment and brokerage accounts
- Retirement accounts like 401(k)s and IRAs
- Life insurance proceeds, if you own the policy
- Business interests
- Valuable personal property like art or collectibles
One of the foundational parts of our work is helping clients create an accurate inventory of their assets. Only by knowing the true value of your estate can we plan for how it will be treated under the law, including the rules laid out in New York Tax Law § 952, which defines the state’s estate tax framework.
The goal is never to just avoid tax. The goal is to be an intentional custodian of your legacy. It’s about ensuring that the assets you worked a lifetime to build serve the purpose you intend—whether that’s providing for your children’s education, supporting a charitable cause, or seeding the next generation of your family’s growth. Proactive planning makes that possible.
The first step is to gain clarity. Understand what you own and how it measures against the current state and federal tax thresholds. If you would like to schedule a confidential review of your family’s assets and potential estate tax liability, my office can arrange a meeting to assess your situation.
