Estate Tax: What Families Should Know

When families hear “estate tax,” they often picture a single bill. In reality, New York residents face two separate systems — a state estate tax and a federal one — with different thresholds and very different rules. Knowing how they compare, and where New York’s notorious “cliff” lurks, is the difference between an estate that passes smoothly and one that hands the state far more than expected.

New York’s Estate Tax and the Cliff

New York imposes its own estate tax on the estates of residents and on New York property owned by nonresidents. For 2026, the New York basic exclusion amount is $7,350,000. If your taxable estate is at or below that figure, no New York estate tax is due. The danger is the New York “cliff”: once an estate exceeds the exclusion by more than 5% — above roughly $7,717,500 — the exclusion disappears entirely and the whole estate is taxed, not just the excess. An estate just over the cliff can owe hundreds of thousands of dollars that a slightly smaller estate would not. This is unique enough that it deserves its own line in any New York plan.

The Federal Estate Tax by Comparison

The federal estate tax has a much higher exemption than New York’s, so many families owe New York estate tax while owing nothing federally. Two structural differences matter when comparing the systems. First, the federal system allows “portability,” letting a surviving spouse use a deceased spouse’s unused exemption — New York does not offer portability. Second, federal exemption levels have been subject to legislative change, so the gap between the two systems can shift. Because New York has no portability, married couples often plan deliberately to use both spouses’ exclusions rather than rely on the survivor.

The Unlimited Marital and Charitable Deductions

Both systems allow an unlimited marital deduction — property passing to a U.S.-citizen spouse is not taxed at the first death — and an unlimited charitable deduction. These are the simplest planning levers, but for New Yorkers near the cliff, leaning only on the marital deduction can backfire by stacking everything into the survivor’s estate, where the cliff strikes again.

How Families Reduce Exposure

• Lifetime gifting: Reducing the estate below the exclusion can avoid the cliff entirely. Note New York generally pulls certain gifts made within three years of death back into the estate.
• Irrevocable trusts: Assets moved into a properly structured irrevocable trust may sit outside your taxable estate — unlike a revocable trust, which offers no tax savings at all.
• Credit-shelter planning: Married couples can use trusts to capture both exclusions despite New York’s lack of portability.
• Charitable strategies: Bequests and charitable trusts shrink the taxable estate while supporting causes you value.

Why the Comparison Matters

Because the two systems have different exemptions and New York alone imposes the cliff, a plan optimized only for federal taxes can still produce a large New York bill. The reverse is also true. The goal is a plan that addresses both — and watches the cliff carefully if your estate is anywhere near $7,350,000.

Estate tax thresholds and the cliff calculation change over time and depend on the specifics of your assets. Before relying on any figure here, consult a licensed New York estate planning attorney to model your exposure under current law.