When Congress doubled the Federal Estate Tax exemption in 2018, many Americans breathed a sigh of relief — couples could pass over $20 million tax-free at the federal level. Even though the 2026 Federal Tax Exemption will allow couples to pass over $30M, anyone with New York property should not get relaxed! New York’s own estate tax, with an exemption of $7.16 million, comes with a nasty surprise: the Estate Tax Cliff.
How the Cliff Works
In most states, you’re only taxed on what exceeds the exemption. For example, in Maine, if Joe dies with an $8 million estate and the exemption is $7 million, only the extra $1 million is taxed.
In New York, however, once your estate exceeds 105% of the exemption (currently $7.518 million), the entire estate — not just the excess — becomes taxable. If Joe were a New Yorker, his heirs would lose over $750,000 to state estate tax instead of paying only a small amount on the overage. Crossing the cliff by even a dollar can mean a huge tax bill.
Importantly, this “cliff” applies to all property located in New York — even if you live in another state.
How to Stay on Solid Ground
- Use Trusts Wisely
An irrevocable trust can move appreciating assets, like a beach house or investment account, out of your taxable estate. This allows growth to occur tax-free for your heirs while maintaining some control through the trust terms.
2. Add a “Santa Clause” to Your Will
This clever clause directs any amount over the exemption to a charity of your choice. The result? Your heirs inherit more, and your favorite cause benefits — a win-win that can save hundreds of thousands in taxes.
3. Make Lifetime Gifts
New York has no gift tax, so you can transfer assets during your lifetime without affecting your state exemption — provided the gift is made at least three years before death. For families near the cliff, this can be a powerful strategy.
The Bottom Line
A well-planned estate can avoid the New York “cliff” altogether. Work with an experienced estate planning attorney to structure your assets, trusts, and charitable gifts so you can preserve wealth for your loved ones — not Albany.
