Editorial staff
Let’s break down what this $7.35M figure really means, how state and federal rules play together (or, honestly, don’t), and some practical ways to get ahead of the curve. If you want someone to actually help you draft a will, set up a trust, or figure out a gifting plan, a Long Island estate planning attorney could be a smart call.
New York Estate Tax Exemption in 2026: The $7.35M Threshold
So, here’s the deal: New York’s exemption is set at roughly $7.35 million for 2026. Whether your estate owes state-level transfer tax all comes down to this number. And here’s the kicker—a “cliff” in the rules means that even a tiny bit over the exemption can make your whole estate taxable.
Key Numbers and How They Have Changed
For 2026, the New York estate tax exemption is $7,350,000. It’s been indexed for inflation in the past, but it’s not portable between spouses. If your estate is at or under that, you’re in the clear for state transfer tax. Meanwhile, the federal exclusion is shifting after 2025, but New York’s number stays lower and is totally separate.
Federal annual gift exclusion is $19,000 per person in 2026—not bad for lifetime planning, but it doesn’t move the needle on New York’s estate exemption. Executors have to add up the federal gross estate and any includible gifts to see if you’re over the state line. Sometimes, just a small bump in asset values or a recent gift can push you right over that $7.35M edge.
Understanding the Estate Tax Cliff
New York uses a graduated rate above the exemption, but the infamous “cliff” means if your estate is more than 105% of the exemption, the whole thing gets taxed at a higher rate—no gentle slope here. For 2026, that cliff sits around $7,717,500 (that’s 105% of $7,350,000). Cross that line, and your tax bill could jump a lot more than you’d expect from minor coverage.
This setup gives you a real incentive to plan ahead—think lifetime gifts, getting accurate valuations, and lining up liquidity so you’re not forced to sell assets at the wrong moment. If you’re handling someone’s estate, don’t wait: get those numbers nailed down and consider timing gifts or sales early to dodge the cliff.
State vs. Federal Estate Tax: Major Differences
New York’s estate tax is its own beast, separate from the federal system. The federal exclusion is going up for 2026 (thanks, Congress), so you can shield a lot more from federal tax. But New York’s threshold is lower and doesn’t play by the portability rules—so if a spouse dies and doesn’t use their exemption, it’s gone for good.
Rates aren’t the same, either: federal estate tax tops out at 40%, while New York’s got its own scale and that nasty cliff. And the paperwork’s different, too—sometimes you’ll need to file a New York return even if you skip the federal one, especially if there’s property in New York or your total includible assets break the state exemption.
Effective Planning Strategies for the New Exemption
With the 2026 move to a $7.35 million threshold, you really have to get strategic: make sure each spouse uses their exclusion, get appreciating assets out of your estate early, and look at income- or gift-based vehicles to shift future growth somewhere safer.
Leveraging Credit Shelter Trusts for Non-Portability
Credit shelter trusts (or bypass trusts, if you prefer) let you lock in your state exemption at the first spouse’s death, so the survivor’s estate doesn’t get whacked by the same threshold. Heirs can get trust principal and income under the trust’s rules, and the assets usually stay out of the surviving spouse’s taxable estate. The trust needs to be drafted to the New York exemption—not the federal one—or you could accidentally mess up your state planning.
Some drafting and practical tips:
- Spell out exactly how the trust should be funded, and give the trustee flexibility for tricky assets like real estate or a family business.
- Be careful with decanting and limited powers so you don’t blow the state tax benefits.
- Coordinate with other estate docs so you can still use disclaimers or QTIP elections if things change down the road.
Using SLATs, ILITs, and GRATs for Exemption Maximization
Spousal lifetime access trusts (SLATs) let one spouse move assets out of both estates, but still allow some indirect benefit through the other spouse. They’re useful—if the contributing spouse lives for a decent stretch and tax laws don’t shift too much. Just watch out for IRS “reciprocal trust” rules; the language matters.
Irrevocable life insurance trusts (ILITs) get life insurance proceeds out of the estate, which might be the thing that tips you over $7.35M. Grantor retained annuity trusts (GRATs) are handy for shifting future appreciation to heirs with little (or no) gift-tax hit if you use short annuity terms and pick assets with real growth potential.
Here’s a quick checklist:
- Don’t fund both SLATs at once—stagger them to keep access and avoid pulling both into the estate.
- Make sure ILITs have Crummey powers and that you’re on top of gift-tax filings.
- For GRATs, pick assets you think will really grow, and set annuity terms that give you a good shot at leaving a residue, while staying within interest-rate rules.
Lifetime Gifting and Charitable Remainder Trusts
Giving away assets above the annual exclusion can chip away at your taxable estate, but New York’s three-year lookback rule on certain gifts means you’ve got to watch your timing. Gifts made more than three years before you pass? Those sidestep the claw-back, so moving appreciating real estate or business interests out of your estate sooner rather than later is usually the smarter play.
Charitable remainder trusts (CRTs) can turn a taxable asset into a steady income stream for your chosen beneficiaries, with whatever’s left eventually going to charity. That chunk you gift gets pulled from your estate calculations. Plus, CRTs can hand you immediate income-tax perks if you use appreciated property, and they help you dodge those forced sales that can drain liquidity.
Execution notes:
- Make sure to get good valuations and keep up with gift-tax filings (Form 709), so you know how much of your federal exemption you’ve burned through.
- For closely held business interests, try pairing lifetime gifting with valuation discounts—but don’t forget to weigh the anti-abuse rules. They can be tricky.
- Pick CRT payout rates that actually fit your income needs and what you want left for charity. It’s a bit of a balancing act if you’re aiming to shrink the estate as much as possible.
Editorial staff
