NY Estate Tax: Essential Guide to Smart and Easy Planning

Let’s be real: thinking about your estate and the NY estate tax isn’t fun. It feels abstract, morbid, and honestly? Most people assume it won’t affect them. But here’s the thing—New York has one of the strictest NY estate tax systems in the country, and if you own property, a business, or have accumulated wealth here, you could be leaving your family with a six-figure tax bill they didn’t see coming.

The good news? Unlike the federal estate tax (which only bites if you’re worth $13.61 million+), New York’s NY estate tax kicks in at just $6.94 million. That means middle-to-upper-class New Yorkers are actually at risk. And the worse news? Most people don’t plan for it until it’s too late.

This guide breaks down everything you need to know about the NY estate tax—what it is, how much it’ll cost your family, and exactly what you can do starting today to minimize it. No jargon, no fear-mongering. Just actionable strategies that work.

What Is NY Estate Tax (And Why It Matters)

The NY estate tax is a state-level tax that applies when you die and pass your assets to your heirs. Think of it like a final tax bill on everything you own—your house, investments, bank accounts, retirement funds, even the value of your business—all added up and taxed at rates up to 16%.

Here’s where it gets tricky: New York doesn’t care what the federal government says. Even if you’re nowhere near the federal estate tax threshold, the NY estate tax still applies. And unlike federal law (which changes with administrations), New York’s tax has been consistent and aggressive for years.

The state has what’s called a “decoupled” estate tax system. Basically, New York said, “Thanks but no thanks” to the federal exemption increases. So while the feds raised their exemption to $13.61 million in 2024, New York’s exemption is stuck at $6.94 million. That gap? That’s where your money goes to taxes instead of to your kids.

This is your first line of defense. Every New York resident gets to pass $6.94 million tax-free (in 2024; it adjusts annually). Married couples? You get $13.88 million combined—but only if you plan correctly. Many couples mess this up by not structuring their wills properly, and the surviving spouse loses the deceased spouse’s unused exemption. We’ll talk about that in the trusts section.

Anything you leave to your spouse is 100% deductible from your NY estate tax. Sounds great, right? Here’s the problem: it just delays the tax. When your spouse dies, their estate (now including what you left them) gets taxed. If both of you have large estates, you’re essentially doubling the tax hit for your kids.

Money left to qualified charities is fully deductible. If you’re charitably inclined and have a large estate, this can be a legitimate tax-saver. But it only works if you actually want to give money to charity. Don’t let the tax tail wag the philanthropic dog.

These reduce your taxable estate. Mortgage balances, outstanding loans, and funeral expenses all come off the top. If you have significant debt, this can meaningfully lower your NY estate tax burden—though obviously, you’d rather not have the debt in the first place.

One often-overlooked deduction: the cost of administering your estate. Executor fees, attorney fees, accounting fees—these are all deductible. It’s not huge, but every dollar counts.

Gifting Strategies to Reduce Your Taxable Estate

This is where smart planning happens. The best way to avoid the NY estate tax is to reduce the size of your taxable estate before you die. Gifting is the primary tool.

The IRS (and New York) allows you to give up to $18,000 per person, per year (2024) completely tax-free. Married couples can give $36,000 per recipient annually without any tax consequences or paperwork.

Here’s the strategy: If you have three kids and three grandchildren, that’s six people. You and your spouse can gift $36,000 × 6 = $216,000 per year, completely tax-free. Over 10 years? That’s $2.16 million out of your taxable estate. Over 20 years? $4.32 million. This is the simplest, most powerful tool for reducing your NY estate tax liability.

The catch? You have to actually do it. Many wealthy people never gift because they’re worried about losing control of their money or they simply forget. Set a calendar reminder. Make it automatic.

Warning: If you gift more than the annual exclusion in a single year, you don’t pay tax immediately—but you use up part of your lifetime exemption. If your estate is already close to the $6.94 million threshold, large gifts can push you over and create a NY estate tax bill. Coordinate with a tax advisor before making large gifts.

You also have a lifetime exemption for gifts above the annual exclusion. Right now, that’s $13.61 million federally. But here’s the trap: New York doesn’t recognize the federal lifetime exemption for NY estate tax purposes. New York’s lifetime exemption for gifts is essentially zero for NY estate tax purposes (though it exists federally).

This means if you make a large gift to reduce your taxable estate, you’re using up your federal exemption but not your New York exemption. It’s complicated, and this is exactly where people need professional help.

This is an advanced strategy, but it’s powerful. You create a trust that’s “defective” for income tax purposes but works perfectly for estate tax purposes. You fund it with appreciating assets (like growth stocks or real estate). The trust grows, but you pay the income taxes on it (which is actually good—it removes more money from your taxable estate). Your heirs eventually inherit the assets at a stepped-up basis, and the appreciation escapes the NY estate tax entirely.

This requires professional setup and isn’t for everyone, but if you have significant growth assets and a large estate, it’s worth exploring with an estate planning attorney.

Trusts and Advanced Planning Tools

Trusts are the backbone of serious estate planning. They’re not just for billionaires—they’re for anyone with an estate large enough to trigger the NY estate tax.

A revocable living trust lets you maintain control of your assets during your lifetime, but it avoids probate and simplifies administration. The downside? It doesn’t reduce your NY estate tax liability. Your assets are still part of your taxable estate. But it’s still useful because it keeps your estate out of public court proceedings and speeds up distribution to heirs.

Here’s a common problem: life insurance proceeds are included in your taxable estate. If you have a $2 million life insurance policy, that $2 million gets added to your estate for NY estate tax purposes. An ILIT removes the life insurance from your taxable estate entirely. You fund the trust, the trust owns the policy, and when you die, the proceeds go to your heirs tax-free (for estate tax purposes).

This is especially valuable if you’re using life insurance to fund the NY estate tax bill itself. You can create an ILIT, fund it with life insurance, and use the proceeds to pay your estate’s taxes. Your heirs get the rest of your assets intact.

Own a vacation home worth $2 million? A QPRT lets you transfer it to your heirs at a discounted value for NY estate tax purposes. You retain the right to live in it for a set period (say, 10 years). After that, your heirs own it. The value included in your taxable estate is much lower than the home’s actual value because you retained the use for a period. When the term ends, you can rent it from your heirs if you want to stay.

A GRAT is a trust where you transfer assets and receive an annuity payment back each year. If the assets appreciate faster than the IRS’s assumed rate, the excess appreciation goes to your heirs tax-free. It’s particularly useful for assets you expect to grow significantly. The downside? If you die during the GRAT term, it doesn’t work as planned. But if you survive, it’s incredibly powerful.

All of these trusts require professional drafting and ongoing administration. But if your estate is subject to the NY estate tax, the cost of setting up these structures (typically $2,000-$5,000 per trust) is trivial compared to the taxes you’ll save.

The Biggest NY Estate Tax Mistakes (And How to Avoid Them)

After years of seeing families deal with the NY estate tax, certain mistakes come up repeatedly. Here are the ones that hurt the most.

A married couple with a $12 million estate should be able to pass it tax-free (using both spouses’ $6.94M exemptions). But many couples have everything in one spouse’s name or structured so that when the first spouse dies, their exemption disappears. The surviving spouse then inherits everything, and when they die, only one exemption is available. That’s roughly $1 million in unnecessary NY estate tax.

The fix? Use an “A-B trust” or “bypass trust” structure. When the first spouse dies, their assets fund a trust that’s excluded from the surviving spouse’s taxable estate. Both exemptions get used.

Many people think about their NY estate tax based on what they paid for assets, not what they’re worth now. You bought a house for $500,000 in 1995. It’s now worth $2 million. Your taxable estate includes the $2 million, not the $500,000. Same with investments, businesses, and collectibles. Don’t underestimate your estate value.

Your 401(k), IRA, and life insurance have beneficiary designations. These pass outside of your will and outside of probate—but they’re still part of your taxable estate for NY estate tax purposes. If you named your ex-spouse as beneficiary in 2005 and never updated it, surprise! They’re inheriting $500,000. And your current spouse gets nothing. Update these every few years, especially after major life changes.

Some parents add adult children to the deed of their home to “avoid probate.” Big mistake. The entire property value is included in your taxable estate for NY estate tax purposes, even though your child owns half. You get no tax benefit, but you’ve given your child ownership rights that could complicate things if they face creditors or divorce. Use a trust instead.

The NY estate tax exemption is set to drop significantly in 2026 (from $6.94M to roughly $3.5M, unless Congress acts). If you’re close to the current exemption, you have maybe one year to execute gifting strategies. Waiting could cost your family hundreds of thousands of dollars. Read about the estate tax mistakes that can cost families millions for a deeper dive into how procrastination specifically hurts.

Pro Tip: The 2026 exemption cliff is real. If your estate is between $6.94M and $10M, you should be actively gifting or implementing trust strategies right now. Don’t wait until 2025 to start planning.

Your Action Plan: What to Do This Year

Enough theory. Here’s exactly what to do, step by step.

1. Calculate Your Actual Estate Value: List everything you own—house, investments, retirement accounts, life insurance, business interests, collectibles. Get current values (not purchase prices). Add it all up. This is your baseline.
2. Determine Your NY Estate Tax Exposure: Subtract $6.94 million. If the result is positive, you have a potential NY estate tax liability. Use a simple calculator (available on the New York Department of Taxation and Finance website) to estimate your actual tax bill.
3. Meet with an Estate Planning Attorney: Not a general lawyer—specifically an estate planning attorney licensed in New York. They’ll review your situation and recommend trust structures. Budget $2,000-$5,000 for initial planning. If your estate is large, this is the best money you’ll spend.
4. Start Annual Gifting: If you have the cash flow, begin gifting $18,000 per person per year to your heirs. It’s tax-free, it reduces your taxable estate, and your heirs get the money while you’re alive to see them enjoy it.
5. Update Your Will and Beneficiary Designations: Make sure your documents reflect your actual wishes and coordinate with your overall estate plan. This takes a few hours but prevents major problems.
6. Consider Life Insurance Funding: If your estate will owe NY estate tax, life insurance in an ILIT can fund the bill without forcing asset sales. Talk to an insurance advisor about this.
7. Schedule Annual Reviews: Estate laws change. Your life changes. Review your plan annually with your attorney and tax advisor. It’s cheap insurance against outdated strategies.

The key is to start now. The NY estate tax doesn’t care about your intentions—it only cares about your taxable estate when you die. Every year you delay is a year you’re not reducing that liability.

Frequently Asked Questions

Do I have to pay the NY estate tax if I live in another state but own property in New York?

– Yes, partially. The NY estate tax applies to New York real property regardless of where you live. So if you own a rental apartment in Manhattan but live in Florida, the value of that property is subject to NY estate tax. Your other assets (held outside New York) are not. This is why some people sell New York property before moving out of state.

Can I reduce my NY estate tax by making large gifts before I die?

– Absolutely. Gifts up to $18,000 per person per year are tax-free and permanently reduce your taxable estate. Larger gifts use your lifetime exemption. The key is to actually do it—make it part of your financial plan. Many people intend to gift but never follow through.

What happens if my estate is under $6.94 million? Do I still need to plan?

– You don’t need to worry about the NY estate tax specifically, but you should still have a will and beneficiary designations in place. You might also want a revocable living trust to avoid probate. And if your estate could grow above $6.94 million in the future (through inheritance, business growth, or market appreciation), start planning now while you’re under the threshold.

Is the NY estate tax exemption the same as the federal exemption?

– No. This is crucial. The federal exemption is $13.61 million (2024). New York’s is $6.94 million. They’re separate. You could owe federal estate tax and NY estate tax, or just NY estate tax, depending on your total wealth. Always plan for both.

What’s the difference between the NY estate tax and the NY inheritance tax?

– New York doesn’t have an inheritance tax. Some states do (like Pennsylvania and New Jersey). The NY estate tax is paid by your estate before distribution to heirs. An inheritance tax (where it exists) is paid by the heirs after they receive their inheritance. New York only has the estate tax.

Can I use a trust to avoid the NY estate tax entirely?

– No trust makes the NY estate tax disappear if your estate exceeds the exemption. But trusts can reduce your taxable estate (like ILITs removing life insurance) or allow you to use both spouses’ exemptions (with bypass trusts). Combined with gifting, trusts can dramatically reduce your NY estate tax liability, but they don’t eliminate it.

What if I die before my trust is fully set up?

– Your estate goes through probate and is still subject to the NY estate tax. The lack of a trust doesn’t exempt you from the tax—it just means your heirs deal with a longer, more expensive probate process while the tax bill is being calculated. This is why setting up your plan now matters.

How often should I review my NY estate tax plan?

– At least annually, especially if your wealth changes significantly. The exemption amount adjusts each year for inflation. Tax laws change. Your life circumstances change. What made sense three years ago might not work today. Budget for a quick annual review with your estate planning attorney—usually a 30-minute call to confirm everything is still aligned.

Is the NY estate tax going away?

– Not anytime soon. New York has been aggressive about maintaining its estate tax even as other states have eliminated theirs. The exemption is set to drop significantly in 2026 (unless Congress changes federal law, which could trigger changes in New York). Plan assuming the NY estate tax is permanent.