The 2025 New York estate tax exemption is set at $7.16 million per person. This means if the total value of your assets is at or below this amount when you pass away, New York State generally won't levy an estate tax. However, for estates exceeding this threshold, understanding the rules and planning accordingly is crucial. This article will break down what that means for you and your family.
For New Yorkers, particularly those with significant assets, the state's estate tax is a critical factor in estate planning. Unlike the federal estate tax, which currently has a much higher exemption ($13.99 million per person in 2025), New York's lower threshold means more estates could potentially be affected.
Who is Affected by the New York Estate Tax?
The New York estate tax primarily affects:
- New York State Residents: If you are a resident of New York and the total value of your worldwide assets (your "gross estate") plus certain taxable gifts made within three years of death exceeds $7.16 million in 2025, your estate may be subject to New York estate tax.
- Non-Residents with New York Property: Even if you are not a New York resident, if you own real estate or tangible personal property (like artwork or vehicles) located in New York State, and your total estate (including assets outside New York) plus includible gifts exceeds the $7.16 million exemption, your estate may need to file a New York estate tax return and potentially pay tax on the New York-sited property.
Understanding the "Cliff Effect"
A unique and rather harsh feature of the New York estate tax is the "cliff." Unlike the federal system where only the amount over the exemption is taxed, New York has a different approach.
- If your taxable estate is at or below $7.16 million, you owe no New York estate tax.
- If your taxable estate is slightly above $7.16 million but less than 105% of the exemption amount (approximately $7.518 million for 2025), the tax is calculated only on the amount exceeding the exemption.
- However, if your taxable estate exceeds 105% of the $7.16 million exemption, the entire estate becomes subject to New York estate tax, calculated from the first dollar. This means the benefit of the exemption is completely lost, potentially leading to a surprisingly large tax bill.
This "cliff" makes precise estate planning particularly important if your estate value is near or above the exemption amount.
Key Differences from Federal Estate Tax to Keep in Mind:
- Exemption Amount: As noted, New York's $7.16 million exemption in 2025 is significantly lower than the federal $13.99 million.
- Portability: The federal estate tax law allows a surviving spouse to use any unused portion of their deceased spouse's federal exemption (a concept called "portability"). New York State does not offer portability. This means each spouse has their own $7.16 million exemption, and if it's not used (for example, if everything is left directly to the surviving spouse, qualifying for the marital deduction), it's lost.
- Gift Tax: New York State does not have a separate gift tax. However, taxable gifts made by a New York resident within three years of their death are "added back" to their estate for the purpose of calculating the New York estate tax. (The annual federal gift exclusion for 2025 is $19,000 per recipient and gifts up to this amount are generally not added back).
How to Plan for the New York Estate Tax:
Given these rules, proactive planning is essential. Here are some strategies to consider:
- Valuing Your Estate: The first step is to get a clear picture of your net worth. This includes real estate, investments, retirement accounts, life insurance proceeds (if you own the policy), business interests, and valuable personal property.
- Utilize Marital Deduction & Credit Shelter Trusts: For married couples, assets left to a U.S. citizen spouse are generally not subject to estate tax due to the unlimited marital deduction. However, this only defers the tax until the surviving spouse's death. To utilize both spouses' New York exemptions and avoid the "portability" trap, attorneys often recommend "Credit Shelter Trusts" (also known as Bypass Trusts or A-B Trusts). These trusts can shelter the first spouse's exemption amount, making those assets available to the surviving spouse without being included in their estate later.
- Make Lifetime Gifts: Gifting assets during your lifetime can reduce the size of your taxable estate. You can make gifts up to the annual federal exclusion amount ($19,000 per person in 2025) without gift tax implications or using up your lifetime federal exemption. Larger gifts are possible but may use some of your federal lifetime exemption and require a gift tax return. Remember New York's three-year look-back rule for gifts.
- Charitable Giving: Donations to qualified charities, either during your lifetime or through your estate plan, can reduce your taxable estate. Strategies like Charitable Remainder Trusts or Charitable Lead Trusts can offer tax benefits while supporting causes you care about. Some estate plans include a "charitable savings clause" that, if the estate would otherwise fall off the tax cliff, directs a specific amount to charity to bring the taxable estate below the threshold.
- Irrevocable Trusts: Certain types of irrevocable trusts, such as Irrevocable Life Insurance Trusts (ILITs), can remove assets (like life insurance proceeds) from your taxable estate. Other advanced trust strategies might also be appropriate depending on your circumstances.
- Review and Update Your Plan Regularly: Life events such as marriage, divorce, birth of children, significant changes in assets, or changes in tax laws (like the upcoming potential change to the federal exemption) should trigger a review of your estate plan.
The New York estate tax is complex, and the "cliff" provision requires careful attention. Consulting with an experienced Queens, NY trusts and estates attorney is crucial to understand how these rules apply to your specific situation and to develop a tailored plan to protect your assets and ensure your wishes are carried out efficiently. With foresight and proper planning, you can minimize potential tax burdens and preserve more of your legacy for your loved ones. Feel free to contact the Law Offices of Roman Aminov, P.C. at 347-766-2685 for a free consultation to discuss your matter.
