Introduction
Estate planning in New York State comes with its own quirks. A key feature is the estate tax threshold, which determines when an estate must pay state-level taxes. New York’s rules include a “cliff” that can trigger taxes on the entire estate if certain bounds are exceeded—making planning extra important.
This blog covers: the current NYS threshold, how the “cliff” works, how NY differs from federal rules, strategies to mitigate estate tax exposure, and key pitfalls.
Current NY State Estate Tax Exclusion / Threshold
- For deaths occurring on or after January 1, 2025, through December 31, 2025, the basic exclusion amount is $7,160,000. Estate Planning NYC & Brooklyn+3NY State Taxation & Finance+3Faegre Drinker+3
- Estates whose federal gross estate + includible gifts exceed this exclusion must file a NYS estate tax return. NY State Taxation & Finance
- For estates below the threshold, there’s no NYS estate tax.
The “Cliff” Rule: A Harsh Feature of NY’s Law
Unlike most states (or the federal system), New York has a cliff provision:
- If your taxable estate exceeds 105% of the exclusion amount, the entire estate (not just the portion over the threshold) becomes taxable. Wealthspire+4Estate Planning NYC & Brooklyn+4NY State Taxation & Finance+4
- In 2025, 105% of $7,160,000 is ~ $7,518,000. So, if your estate is e.g. $7,600,000, all $7,600,000 is subject to NY estate tax—not just the $440,000 over. 4cornerslegacylaw.com+2Estate Planning NYC & Brooklyn+2
- Between $7,160,000 and $7,518,000, the tax is only on the amount over the exclusion. But crossing that 105% threshold triggers the full estate being taxable. Estate Planning NYC & Brooklyn+2The Chamberlain Law Firm+2
This cliff effect can cause drastically higher tax liability if your estate strays slightly above the buffer.
NY vs Federal: Key Differences
| Feature | NYS | Federal |
|---|---|---|
| Exclusion Amount (2025) | $7,160,000 NY State Taxation & Finance+2Faegre Drinker+2 | $13.99 million per person (2025) Estate Planning NYC & Brooklyn+3Faegre Drinker+3Chase+3 |
| “Cliff” Provision | Yes – exceeding 105% triggers tax on full estate The Chamberlain Law Firm+3Estate Planning NYC & Brooklyn+3NY State Taxation & Finance+3 | No |
| Portability between spouses | No — unused portion in first spouse’s estate is lost NY State Taxation & Finance+3Estate Planning NYC & Brooklyn+3Chase+3 | Yes — surviving spouse can use unused federal exemption |
| Gift tax | NY has no separate gift tax, but gifts made within 3 years of death may be added back into estate calculation Estate Planning NYC & Brooklyn+24cornerslegacylaw.com+2 | Federal gift/estate unified system; gifts count against lifetime exemption |
NY State Estate Tax Rates
Once an estate is taxable, rates range from 3.06% up to 16%, depending on the size of the taxable estate. Chase+3SmartAsset+3Estate Planning NYC & Brooklyn+3
The tax is generally calculated on taxable estate (gross estate + gifts – deductions). But again, because of the cliff, a slight overshoot can trigger taxation from dollar one.
Strategies to Avoid or Mitigate
Given the cliff, NYers close to the threshold need proactive planning. Some strategies:
- Gifting (early, generous)
Move assets out of your estate now. But remember, gifts given within 3 years of death may be recaptured as part of the estate. Estate Planning NYC & Brooklyn+1 - Use of Trusts
Certain trusts (irrevocable life insurance trusts, charitable remainder trusts, GRATs) can shift value outside the taxable estate. - Liquidity planning
Ensure there is enough cash or liquid assets to pay estate taxes (so heirs don’t have to sell assets under duress). - Bifurcated distributions / credit shelter trust
Since NY doesn’t allow spousal portability, many NY couples use credit shelter or bypass trusts to fully use both spouses’ exemptions. - Valuation discounts / life estates
Use valuation strategies, gifting partial interests (where permitted) or life estates to reduce transferred value. - Monitoring timing of transfers / sales
Be cautious with property value fluctuations — small increases can push over the cliff. Estate planning updates should be regular.
Key Pitfalls & Considerations
- Don’t assume federal exemption handles you — NY’s threshold is much lower.
- The cliff makes estimates dangerous; even slight underestimation of growth, real estate, appreciated assets can push you into full taxation.
- Be careful with gifts close to death — the three-year recapture rule can undo planning.
- Trustees and executors must file timely NYS estate tax returns if required.
- Keep abreast of law changes — thresholds and rules can shift with legislation or inflation indexing.
Final Thoughts
If your estate is within the ballpark of $5–$10 million, New York’s estate tax and cliff rules demand respect. Proactive planning, professional advice, and regular review can mean the difference between passing a legacy or triggering a tax shock.