New York Estate Tax: Essential Tips for Smart Planning

If you’re a New York resident building wealth, the word “estate tax” probably makes you cringe. And honestly? That’s a completely normal reaction. Nobody wants to imagine the IRS taking a massive bite out of everything you’ve worked for—especially when it hits your family after you’re gone. The good news: understanding New York estate tax rules isn’t just about knowing the numbers. It’s about taking control of your legacy and keeping more money in your family’s hands where it belongs.

New York has one of the most aggressive estate tax systems in the country. The state taxes estates starting at just $6.94 million (as of 2024), which means middle-to-upper-income New Yorkers are often caught in the crosshairs. But here’s the real talk: with smart planning today, you can dramatically reduce what your heirs owe when the time comes.

What Is New York Estate Tax (And Why It Matters)

Think of New York estate tax like this: it’s a state-level tax that kicks in when you die and your assets pass to your heirs. Unlike federal income tax (which you pay annually), estate tax is a one-time event—but it can be absolutely devastating if you’re not prepared.

Here’s how it works: when you pass away, New York calculates the total value of your taxable estate. This includes your home, retirement accounts, investments, life insurance, business interests, and even some gifts you made during your lifetime. If that total exceeds the state exemption threshold, the state taxes the excess at rates ranging from 3.06% to 16%.

The reason this matters so much is simple math. A $10 million estate in New York could face roughly $500,000+ in state estate taxes alone (before federal taxes). That money comes directly out of what your kids, spouse, or favorite charity would have received. Over a lifetime of work, building an estate, and making smart financial decisions, losing half a million dollars to taxes feels like a gut punch—especially because it’s preventable.

New York residents often don’t realize they’re even subject to estate tax until it’s too late. Unlike federal estate tax (which only affects ultra-wealthy families), New York’s lower threshold catches a much broader group of successful professionals, business owners, and retirees.

Pro Tip: If you own property in New York but live elsewhere, or you’re a New York resident with out-of-state assets, you still owe New York estate tax on your worldwide assets. Geography matters, but it doesn’t save you.

Current New York Estate Tax Exemptions & Rates

Let’s talk numbers, because this is where your planning actually starts.

As of 2024, New York’s estate tax exemption is $6.94 million per person. This means if your estate is worth $6.94 million or less, you owe zero New York estate tax. But here’s the catch: that exemption is not indexed to inflation (unlike the federal exemption), so it’s stayed relatively flat for years. Meanwhile, real estate values in New York have skyrocketed.

Once you exceed the exemption, the tax rates are brutal:

• 3.06% to 5% on estates between $6.94M and $9.1M
• 6.4% to 8.16% on estates between $9.1M and $13.6M
• 10.24% to 16% on estates over $13.6M

The federal estate tax exemption is much higher ($13.61 million in 2024), but here’s the kicker: it’s scheduled to drop to roughly $7 million per person in 2026 unless Congress extends it. This creates a perfect storm for New York residents, who face both state and federal estate tax pressure.

For married couples, the picture gets more complex. You can combine exemptions (called “portability”), but only if you file the right paperwork with the IRS. Many families miss this, costing themselves hundreds of thousands in unnecessary taxes.

Warning: New York estate tax exemptions are not portable between spouses unless you file a federal estate tax return within 9 months of death—even if you owe zero federal tax. Miss this deadline, and you lose the exemption permanently.

Federal vs. New York Estate Tax: The Double Whammy

Here’s what keeps wealthy New Yorkers up at night: you don’t just owe New York estate tax. You also owe federal estate tax on the same assets. It’s like paying income tax to both the state and federal government—except the rates are much higher.

Federal estate tax kicks in at $13.61 million (2024) and taxes everything above that at a flat 40%. New York estate tax kicks in at $6.94 million and taxes at progressive rates up to 16%. So if you have a $15 million estate, you’re potentially looking at both taxes hitting the same assets.

The math gets ugly fast. A $15 million estate could face:

• New York estate tax: ~$350,000 (on the amount above $6.94M)
• Federal estate tax: ~$856,000 (on the amount above $13.61M)
• Combined: Over $1.2 million in taxes

That’s money that doesn’t go to your family. That’s a family business that might need to be sold to pay taxes. That’s a legacy plan that falls apart.

The federal exemption is also set to sunset in 2026. When that happens, the exemption drops to roughly $7 million per person, meaning far more estates will be subject to federal tax. For New York residents, this is a ticking time bomb. You have roughly 18 months to act before the rules change dramatically.

According to the IRS official guidance on estate and gift taxes, proper planning today can save your heirs significantly when the exemption shrinks.

5 Smart Planning Strategies to Minimize Your New York Estate Tax

Okay, here’s the good news: you have tools. Real, legal, powerful tools that can dramatically reduce what your heirs owe. These aren’t loopholes—they’re strategies that accountants, attorneys, and financial planners use every single day.

1. Maximize Your Annual Gift Tax Exclusion

The IRS lets you give away $18,000 per person per year (2024) without triggering gift tax or using your lifetime exemption. For married couples, that’s $36,000 per person per year. Over 10 years, that’s $360,000 you can move out of your taxable estate—completely tax-free.

Most people don’t use this. They think “Oh, I’ll just leave it in my will.” But that’s backwards. Every dollar you gift today is a dollar that grows outside your estate, tax-free. If that $360,000 grows to $500,000 by the time you die, you’ve saved taxes on $140,000 in growth.

Better yet? You can gift to an irrevocable life insurance trust (ILIT), which removes the life insurance proceeds from your estate entirely. For New York residents, this is a game-changer.

2. Use a Qualified Personal Residence Trust (QPRT)

If your home is a significant part of your estate (and in New York, it usually is), a QPRT lets you transfer it to your heirs at a dramatically discounted value for estate tax purposes.

Here’s how it works: you transfer your home into a trust, retain the right to live there for a set term (say, 10 years), and then it passes to your heirs. The IRS calculates the “gift” value based on your age, the term, and interest rates—and it’s usually 40-60% less than the home’s actual value. You’ve just reduced your taxable estate by hundreds of thousands of dollars, and your heirs get the home at a stepped-up basis (meaning no capital gains tax when they inherit).

The catch? You have to outlive the term. If you don’t, the home comes back into your estate. But that’s fine—you’re no worse off than if you’d done nothing.

3. Create a Grantor Retained Annuity Trust (GRAT)

This is more technical, but it’s incredibly powerful for business owners and investors. A GRAT lets you transfer appreciating assets (like a growing business or investment portfolio) to your heirs while paying yourself an annuity for a set term.

The magic? Any growth above the IRS interest rate (currently around 5-6%) passes to your heirs tax-free. If your business grows at 10% annually, the extra 4-5% is a gift to your kids—with zero gift tax. Over several years, this can transfer hundreds of thousands in wealth.

GRATs are especially useful right now, because interest rates are higher than they’ve been in years. The math works better in your favor.

4. Establish an Intentionally Defective Grantor Trust (IDGT)

This is a mouthful, but it’s one of the most powerful estate tax reduction tools available. An IDGT lets you sell appreciating assets to a trust at fair market value, but because you’re the grantor, you pay income tax on the trust’s income (which is actually a benefit—it removes more wealth from your estate).

The trust buys your assets with a promissory note. As your business or investments grow, that growth happens inside the trust, outside your taxable estate. You’ve frozen your estate at today’s value while the trust benefits from all future growth.

This is complex and requires professional help, but for high-net-worth New Yorkers, it’s worth every penny of the planning fee.

5. Consider a Dynasty Trust or Spousal Lifetime Access Trust (SLAT)

For married couples, a SLAT lets one spouse transfer assets to a trust for the other spouse’s benefit while removing the assets from the first spouse’s estate. The couple gets the benefit of the assets during their lifetime (through the surviving spouse), but the assets are outside the taxable estate.

A dynasty trust goes further, allowing wealth to pass down through multiple generations with minimal estate tax. New York allows dynasty trusts, and they’re particularly useful if you have significant assets and want to build generational wealth.

These require careful drafting and ongoing management, but the tax savings can be enormous. We’re talking about protecting millions of dollars for your great-grandchildren.

Common Mistakes That Cost Families Thousands

After years of helping New York families plan their estates, I’ve seen the same costly mistakes over and over. Here’s what to avoid:

Mistake #1: Assuming Your Estate Is Too Small to Matter

“I’m only worth $5 million. I don’t need to worry about estate tax.” Wrong. New York’s exemption is $6.94 million, but that includes life insurance death benefits. If you’re a business owner or professional with a $3 million net worth plus a $2 million life insurance policy, you’re at $5 million—getting close. Add home equity, retirement accounts, and investment growth, and you’re suddenly over the threshold.

Also, remember: that exemption doesn’t increase with inflation (unlike federal). Your estate could grow into the taxable range over the next 10-20 years.

Mistake #2: Not Filing a Timely Estate Tax Return

Even if you don’t owe federal estate tax, you might owe New York estate tax. And even if you don’t owe either, you might still need to file a return to claim portability (the ability for your surviving spouse to use your unused exemption).

Missing these deadlines costs families their exemptions—permanently. That’s six figures in unnecessary taxes.

Mistake #3: Titling Assets Incorrectly

How you own your assets matters enormously. If you own your home as “tenants in common” with your adult child, half the home is in your taxable estate (and your child can be forced to sell if they need money). If you own it in your own name, the entire home is in your estate but you have more control.

The “right” way depends on your situation, but most people never think about it. They just put the deed in whatever name feels natural—and then they’re stuck with the tax consequences.

Mistake #4: Ignoring the 2026 Exemption Sunset

This is huge. The federal exemption is set to drop from $13.61 million to roughly $7 million in 2026. When that happens, far more families will be subject to federal estate tax. And New York’s exemption might drop too (it’s tied to federal law in some ways).

If you have an estate over $7-8 million, you need to act now. Every year you wait is a year you can’t gift, can’t use trusts, can’t lock in current exemptions. The window is closing.

Mistake #5: Forgetting About Your Life Insurance

Most people think of life insurance as “income replacement” for their family. But the death benefit is fully taxable in your estate. A $2 million life insurance policy adds $2 million to your taxable estate.

If you own the policy, the proceeds are included in your estate. If your spouse owns it, it’s in their estate. The solution? An irrevocable life insurance trust (ILIT) removes the policy from your estate entirely. Your heirs get the $2 million tax-free, and it doesn’t count against your exemption.

Pro Tip: If you already own a life insurance policy, you can transfer it to an ILIT using a “transfer for value” strategy. This removes it from your estate without triggering income tax. It’s one of the easiest wins in estate planning.

Your Action Plan: Steps to Take Now

Okay, you understand the problem. Now let’s talk about what to actually do.

You can’t plan if you don’t know the size of your estate. Add up:

• Home value (use recent appraisals or Zillow estimates)
• Investment accounts (brokerage, stocks, bonds)
• Retirement accounts (401k, IRA, Roth IRA)
• Business interests or professional practices
• Life insurance death benefits
• Other real estate, vehicles, collectibles

Be honest and thorough. Many people underestimate their net worth.

Once you know your estate value, calculate your potential tax liability. Use the rates and exemptions from earlier in this article. Remember to include both New York and federal estate tax.

If your estate is over $6.94 million, you have a problem. If it’s over $13.61 million, you have a serious problem. Either way, planning is urgent.

This isn’t something to DIY. You need a real attorney who specializes in New York estate tax planning, not just a generic “will writer” or online legal service. The strategies I mentioned (GRATs, IDGTs, QPRTs) require expert drafting.

A good attorney will review your situation, recommend specific strategies, and implement them correctly. Yes, it costs money. But it saves multiples of that in taxes.

Check your life insurance policies, retirement accounts, and payable-on-death accounts. Make sure beneficiaries are listed correctly. These pass outside your will and can be a source of unintended tax problems if not handled right.

If your estate is over the exemption threshold, start using your annual $18,000 gift exclusion immediately. Gift to your kids, grandkids, or a trust. Every dollar you gift today is a dollar you don’t pay tax on later.

If your estate will owe estate tax, consider whether you need life insurance to cover the tax bill. Many families use insurance proceeds to pay taxes, so the estate itself doesn’t need to be liquidated. This is especially important if you own a business.

Keep records of all gifts, trust documents, and planning decisions. When you die, your executor will need to know what trusts exist, what assets are inside them, and why. Poor documentation can turn a smooth estate settlement into a nightmare.

You might also want to check resources like Investopedia’s explanation of estate tax basics to deepen your understanding, or consult NerdWallet’s estate tax guide for additional perspectives.

If you’re also concerned about your current paycheck and want to optimize your New York income taxes while you’re still earning, check out Unlock Hidden Savings: NYC Paycheck Calculator Secrets to see if you’re leaving money on the table. The same principle applies: small optimizations compound into big savings.

Frequently Asked Questions

What’s the difference between New York estate tax and inheritance tax?

– New York has estate tax, not inheritance tax. The distinction matters: estate tax is paid by the estate itself before heirs receive anything. Inheritance tax (which New York doesn’t have, but states like Pennsylvania and New Jersey do) is paid by the heirs. New York residents should be grateful—inheritance tax can be even more punitive because it hits heirs at different rates depending on their relationship to the deceased. For context on how neighboring states handle this, see Maryland Inheritance Tax, which shows how other states structure these taxes differently.

Can I avoid New York estate tax by moving to Florida?

– Not easily. New York taxes the estates of residents on their worldwide assets. If you move to Florida (which has no state income or estate tax) before you die, you might escape the tax—but you have to actually move and establish residency. You can’t just claim you’re a Florida resident while maintaining a New York home and spending most of your time there. The IRS and New York tax authorities look at where you spend your time, where your business is, where your family is, and where your assets are. It’s complicated, and many people who try this get caught. If you’re serious about moving, do it years in advance and document everything.

Is there a way to reduce my estate tax without giving away control of my assets?

– Yes, absolutely. Trusts like GRATs and IDGTs let you transfer appreciation and growth to your heirs while you retain income or control during your lifetime. You’re not giving away the assets themselves—you’re giving away the future growth. It’s a subtle but powerful distinction. You keep the income, you keep the benefit, but the growth goes to your heirs tax-free.

What happens if I die before my QPRT term ends?

– If you die before the term ends, the home comes back into your taxable estate at its full value. So you’re no worse off than if you’d done nothing—you just didn’t get the benefit. This is why timing matters, and why you should only use a QPRT if you’re reasonably confident you’ll outlive the term. It’s not a “heads I win, tails I break even” situation, but it’s close.

Do I need to file a New York estate tax return if I don’t owe any tax?

– Maybe. If your estate is close to the exemption threshold, you might want to file a return anyway to claim portability (allowing your surviving spouse to use your unused exemption). This requires filing a federal estate tax return within 9 months of death. If you don’t file, you lose the exemption permanently. It’s worth talking to an attorney about whether you should file, even if you don’t owe tax.

Can I use my spouse’s exemption if they die first?

– Yes, but only if you file the right paperwork. This is called “portability,” and it requires filing a federal estate tax return within 9 months of your spouse’s death. If you don’t file, you lose the exemption. Many families miss this deadline and lose hundreds of thousands in tax savings. Don’t let this be you.

What’s the difference between a living trust and a testamentary trust?

– A living trust is created during your lifetime and holds assets while you’re alive. It avoids probate, maintains privacy, and can be structured to minimize estate taxes. A testamentary trust is created in your will and only comes into existence after you die. Testamentary trusts don’t avoid probate, and they’re generally less flexible for tax planning. For New York estate tax purposes, a living trust is almost always better.

How often should I update my estate plan?

– At least every 3-5 years, or whenever your situation changes significantly (marriage, divorce, birth of children, major asset acquisition, significant change in net worth). Tax laws also change—the 2026 exemption sunset is a perfect example. Your plan written in 2015 might not account for current rules. Review it regularly.

What if I own property in multiple states?

– You’re subject to estate tax in every state where you own real property. So if you own a home in New York and a vacation home in Florida, you owe New York estate tax on the New York property. This is another reason to plan carefully and possibly use trusts to manage multi-state property ownership.