New York state has some unique and complex laws that people with estates valued in the millions of dollars need to understand so that they can navigate them successfully.
New York is one of the minority of states that has its own estate tax. This is levied separately from the federal estate tax.
What to know about the threshold
For 2024, the threshold or exemption amount for the New York estate tax is $6.94 million. That means if your estate (not counting your spouse’s inheritance and assets going to charity) is under that amount, the estate will owe no taxes. This amount increases somewhat each year, as does the federal estate tax threshold – although the latter is more than twice the state threshold.
There’s another important way the New York estate tax varies from the federal estate tax. Only the amount above the federal threshold is taxed by the federal government – not the entire estate. For New York state tax purposes, only the amount above the threshold is taxed if the total taxable estate is less than 5% over the threshold. If it’s 5% or more over, then the entire estate is taxed. That can make a huge difference in how much of your estate eventually goes to taxes.
That 5% is what’s known as the “tax cliff.” You may have heard that term as well as ways to avoid “falling off” the cliff. These include leaving more assets to your spouse and gifting assets while you’re alive. Another option is something called the “Santa Clause.” That involves designating that if your estate is in danger of falling off the cliff, an amount will be donated to one or more specified charities to prevent that from happening.
All of these steps require careful planning to avoid other complications, like the “clawback” rule. We’ve discussed the clawback rule here in the past. All of this can seem overwhelming. But, it doesn’t have to be with sound estate planning guidance. This can help you maximize the legacy you leave to your loved ones and your other chosen beneficiaries.
