Mayor Mamdani Proposes Changes to New York Estate Taxes The new proposals are a significant change to New York Law

Last month, Bloomberg News and the New York Post reported that New York City Mayor Zohran Mamdani proposed lowering the New York State estate tax exemption to $750,000 from the current level of $7.35 million and increasing the estate tax rate to 50% from the current maximum rate of 16%.

This proposal was in a package of revenue-raising proposals shared by Mayor Mamdani’s staff with the New York Legislature, as part of the budget negotiations for the upcoming year.  At this stage, there has been no written copy of Mayor Mamdani’s proposal that has been publicly available.

This proposal, if accepted by the New York Legislature and signed by the Governor, would result in New York State likely having the highest estate taxes in the nation.  Here are a series of questions and answers to explore this potential policy change.

Why is Mayor Mamdani proposing this?

New York City faces a substantial budget gap next year, which is estimated to be at least $5 billion. This estate tax proposal is one of many proposals given to the New York Legislature by the Mayor’s office for consideration to close that budget gap.

What is the current estate tax exemption?

The current estate tax exemption in New York is $7,350,000.  Generally speaking, this means that you will only have to pay New York State estate taxes if the value of your estate is above $7,350,000.  The federal estate tax level is higher – it currently is set at $15,000,000.  The New York estate tax exemption amount has not been as low as the amount proposed by Mayor Mamdani for over 25 years.  In the years 2000 and 2001, the exemption amount was $675,000.  In the year 2002, it was raised to $1,000,000 and it has steadily increased since that time.

What is the estate tax rate? 

The current estate tax rate for New York ranges from about 3% to 16%, based on the value of the estate.  These rates only apply if the value of your estate is above the exemption amount, which is currently $7,350,000.  Mayor Mamdani’s proposal would increase the rate to 50%.  It is not clear from the publicly available information whether that would be the new top rate or if that would be an across-the-board flat rate.

What does this mean in real terms?

If this proposal were to be accepted by the New York Legislature and signed into law by the Governor, it would subject a significant number of New Yorkers to estate tax.  Depending on the changes, New Yorkers would face the possibility of having to sell assets owned by decedent family members in order to pay estate taxes.

Can you give an example?

If a New York resident owned a house worth $700,000, an investment account worth $400,000, and a business worth $500,000, then they would have a potential taxable estate of $1,600,000.  In a worst-case scenario, if a 50% flat tax rate were applied to their estate, the estate tax due would be $800,000.  In that case, there would be insufficient liquid funds (the $400,000 investment account) to pay the estate taxes.  As a result, the family members would face the prospect of having to sell the family home or business in order to pay the taxes.  This example does not take into account deductions and credits potentially available to the estate.

Have any legislators supported it?

At this time, no New York State legislators have come out and specifically endorsed this proposal.  In addition, Governor Kathy Hochul is not on the record supporting this proposed change in the New York estate tax.

What are the chances this will happen?

That is hard to say.  The proposal is a very significant change in the current law, which historically has not happened before.  Since it would be such a significant change, it makes sense to be aware of it and let your legislators know your opinion on the proposal.

Keeping up on changes in estate taxes can be challenging.  In order to minimize your tax burden and increase what you leave for your loved ones, you should consider contacting an experienced estate planning attorney or tax professional for advice.

Matthew J. Dorsey, Esq. is a shareholder with O’Connell and Aronowitz, 1 Court Street, Saratoga Springs, New York.  Over his twenty-nine years of practice, he has focused on the areas of elder law, estate planning, and estate administration.  Mr. Dorsey can be reached at (518) 584-5205, mdorsey@oalaw.com and www.oalaw.com.