The New York Estate Tax Does Your Family Need to Worry?

For many New Yorkers, the words “estate tax” sound like a problem reserved for the very wealthy.  But New York’s estate tax rules are more complicated, and potentially more important than many people realize.  What is the good news?  Most families will never pay New York estate tax.  Still, it is important to understand what counts as part of your estate, how New York’s estate tax “cliff” works, and why simply being under the current New York estate tax exemption amount does not mean you should ignore estate planning. 

Here is a Q&A that explains the basics of the New York State estate tax and will help you determine what should be on your estate planning checklist.

What is the New York estate tax?

It is a tax imposed by New York State on the transfer of a person’s property after death.  Simply, New York looks at the value of what you own when you die.  If your estate is large enough, New York may impose a tax before your assets pass to your beneficiaries.  Importantly, not every estate is subject to New York estate tax. 

Who pays New York estate tax?

For someone who dies in 2026, the New York basic exclusion amount is $7.35 million.  If your estate is valued below that amount, no New York estate tax is due.  That may sound like a number that applies only to the very wealthy.  But there is an important point many people overlook: your estate includes much more than the money in your bank account.  

What counts as part of my estate?

Generally, your estate can include your home and other real estate; bank and investment accounts; retirement accounts, including IRAs and 401(k)s; business ownership interests; life insurance death benefits; and personal property.  Certain taxable gifts made within three years of death can also be included in the New York estate tax calculation.  

What if I have more than $7.35 million?

That’s when things get more complicated and potentially expensive.  New York has what is commonly called an estate tax “cliff.”  Here is the basic idea.  For someone who dies in 2026, if your taxable estate is greater than $7.35 million but no more than $7,717,500.00, only the amount above $7.35 million is subject to estate tax, at rates ranging from approximately 3.06% to 16%.  But if your taxable estate goes over $7,717,500.00, the rules change dramatically.  The estate tax can apply to your entire taxable estate, not just the amount above $7.35 million.

That is why the estate tax “cliff” matters.  Someone with a larger estate should not assume that only the amount in excess of $7.35 million will be taxed.  

How about married couples? 

Married couples have important estate planning opportunities, but New York’s estate tax exclusion does not simply double automatically because two people are married.  How assets are owned and how an estate plan is structured can make a significant difference.  There are planning techniques that may allow a married couple to preserve both spouses’ available exclusions, thereby doubling the exemption amount.

Can I gift to my children?

You can make gifts to your children, but New York has special rules regarding certain gifts made before death.  Generally, certain taxable gifts made within three years of death must be added back into the New York estate tax calculation.  In other words, giving assets away shortly before death does not necessarily make them disappear from the New York estate tax calculation.  

What if I leave New York?

Moving to another state can change the analysis, but it does not necessarily eliminate the New York estate tax issue.  For a nonresident, New York can still impose estate tax on certain New York property, including real property and tangible personal property located in New York.  That could include a New York home, land, or certain furnishings and other tangible property.  A New York estate tax return may still be required for a nonresident when the value of the New York property, together with assets held outside New York exceeds the New York exemption amount. 

What about federal estate tax?

The federal estate tax exemption amount is currently $15,000,000.  It applies in addition to any potential estate tax liability.  If you have an estate in excess of that, there are different planning strategies that are available at the federal level.  

What if I have less than $7.35 million?

Estate planning is about much more than estate taxes, so you should not ignore estate planning just because you are below the estate tax exemption amount.  Who will make financial decisions if you become incapacitated? Who will make medical decisions for you? Who will inherit your home? What happens if one of your children dies before you? Who will handle your affairs after your death? And what happens to the house if several children inherit it together?  Those questions can affect families with $500,000 estates just as they can families with $10 million estates.

Should I worry about estate taxes?

Probably not if your total estate is comfortably below $7.35 million.  But before you make that assumption, it is important to understand what is included in your estate.  For 2026, New York’s estate tax exclusion is substantial.  But New York’s estate tax “cliff” makes planning particularly important for estates approaching the threshold.  For most families, the better question may not be, “Will I owe estate tax?” It may be: “Do I have a plan for what happens to everything I own, and have I reviewed that plan recently?”  That is a question worth asking regardless of the size of your estate.

James D. Wighaus is an Associate Attorney with O’Connell and Aronowitz, 6 Airport Park Boulevard, Latham, New York.  James’ practice is focused on the areas of corporate law, and trusts and estates law, including estate planning, long-term care planning, estate tax planning and estate administration. James can be reached at (518) 694-5698, jwighaus@oalaw.com and www.oalaw.com.