How to Avoid the New York Estate Tax Cliff

Описание: When someone passes away in New York, in 2025, there is a $7.16 million estate tax exclusion amount, which is significantly lower than the $13.9M exemption amount available at the federal level. However, in addition to the lower estate tax exemption amount, there are also two New York estate tax traps that residents need to be aware of when completing their estate plan. Those two tax traps are:

1) The $7.5 million Cliff Rule
2) No Portability between spouses

With proper estate planning, these tax traps can potentially be avoided, allowing residents of New York to side-step a significant state tax liability when passing assets onto their heirs.

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Frequently Asked Questions (FAQ):
What is the New York estate tax exemption for 2025?
In 2025, New York’s estate tax exclusion amount is $7.16 million per person, which is significantly lower than the federal estate tax exemption of $13.9 million. Estates valued below $7.16 million are not subject to New York or federal estate tax, but larger estates may face substantial state tax liability.

What is the New York “estate tax cliff rule”?
The “cliff rule” means that if an estate exceeds 105% of the exemption amount—$7.518 million in 2025—the entire estate becomes subject to New York estate tax, not just the amount above the threshold. Once an estate crosses the cliff, tax rates ranging from 3.06% to 16% can apply to the entire estate value.

How does New York’s estate tax differ from federal estate tax rules?
Unlike federal law, which allows full portability between spouses and a much higher exemption amount, New York has no portability and a lower threshold. This means any unused exemption at the first spouse’s death is lost unless proactive estate planning is done.

What does “non-portability” between spouses mean in New York?
Non-portability means a surviving spouse cannot use the unused estate tax exemption of their deceased spouse. Without planning, the first spouse’s exemption is forfeited, potentially exposing the surviving spouse’s estate to higher New York taxes later.

How can married couples avoid the New York estate tax cliff and non-portability issue?
Couples can establish separate revocable trusts and divide ownership of assets so that each spouse has enough in their name to fully use their individual New York estate tax exemption. This strategy allows both exemptions to be utilized and avoids unnecessary state taxes at the second spouse’s death.

Why does asset titling matter for estate tax planning in New York?
Jointly held assets automatically transfer to the surviving spouse and bypass the first spouse’s estate, preventing use of that spouse’s exemption. Properly titling assets between spouses or placing them in individual trusts ensures both exemptions can be applied.

When should New York residents start estate tax planning?
It’s wise to plan early—especially for couples whose combined assets approach or exceed $5–6 million. Asset growth, real estate appreciation, and investment performance can easily push estates over the $7.5 million threshold in the future, triggering significant tax liability without planning.