Just last week, a client from Manhattan sat in my office and asked, “What about this seven-year rule I’ve read about? Can I give my children their inheritance now and avoid the tax?” It’s a question I hear often, usually prompted by something seen online that was written for an audience in the United Kingdom. The short answer is that here in New York, no such seven-year rule exists. The long answer is more important—because our laws have their own timelines and thresholds that demand careful, intentional planning.
The “Seven-Year Rule” Is Not a New York Rule
Let’s clear this up from the start. The so-called “seven-year rule” is a feature of the British inheritance tax system. It has no bearing on federal or New York estate tax law. In the U.S., we don’t have a federal inheritance tax, which is a tax paid by the person receiving the assets. Instead, we have an estate tax—a tax paid by the deceased person’s estate before any assets are distributed to beneficiaries.
This distinction is more than semantics. It shifts the entire focus of planning from the beneficiary to the person building the legacy. Your responsibility is one of stewardship. It involves structuring your affairs so the assets you’ve accumulated pass to the next generation with minimal dilution from taxes and administrative costs. Relying on tax rules from another country is a sure way to fail in that duty. We must instead focus on the two tax systems that actually govern New Yorkers: the federal estate tax and the New York State estate tax.
Federal Gift Tax and Your Lifetime Exemption
The federal tax code treats large lifetime gifts and bequests at death similarly through a unified gift and estate tax exemption. For 2024, this exemption is a historic $13.61 million per person. This means you can give away or leave at death a total of $13.61 million without incurring any federal gift or estate tax.
Any taxable gift you make during your lifetime simply chips away at this exemption. For example, if you give your son a $1 million apartment, you must file a gift tax return. You will not likely owe tax, but your remaining lifetime exemption will be reduced to $12.61 million. This system prevents people from simply giving away all their assets on their deathbed to avoid estate tax.
Not all gifts count against this large exemption. The federal government allows you to give up to a certain amount each year to any number of individuals, tax-free, without touching your lifetime exemption. For 2024, this annual exclusion is $18,000. A married couple can combine their exclusions and give $36,000 to each child, grandchild, or anyone else, every year. Prudent, consistent use of the annual exclusion is a powerful tool for transferring wealth across generations.
New York’s Three-Year “Look-Back” Rule
This is where planning gets critical for residents of our state. New York has its own estate tax, and its exemption is significantly lower than the federal one—$6.94 million as of 2024. Many families who owe no federal tax will still find themselves writing a check to Albany.
More importantly, New York has its own version of a “look-back” period. It is not seven years; it is three. Under New York Tax Law § 954(a)(3), certain taxable gifts made by a New York resident within the three years prior to their death are added back into their estate for the purpose of calculating the state estate tax. This “clawback” prevents last-minute, large-scale gifting to get under the New York exemption threshold.
Consider a resident with an estate of $8 million. Knowing this is over the state exemption, they gift $2 million to their children. If they pass away four years later, their taxable estate is $6 million, and no New York estate tax is due. But if they pass away within three years of making that gift, the $2 million is added back. The state will calculate tax based on an $8 million estate. This is a critical contingency to plan for. Stewardship.
Managing your legacy is not about finding loopholes. It is about understanding the law and making deliberate choices that honor your intentions for your family. The rules governing gifts and estates are precise, and acting on bad or out-of-context information can lead to unintended and costly consequences.
Before making any substantial gifts, I advise clients to create a complete inventory of their assets and prior gifts. The next prudent step is to schedule a session where we can review this inventory and map out a gifting strategy that aligns with your family’s goals and the realities of tax law.
