New York’s Estate Tax Cliff: How to Avoid a Six Figure Surprise

Most families aren’t affected by estate taxes—but if your estate (including real estate) is nearing $7 million, you need to pay attention.

Who’s Impacted and What’s Changed

• New York’s estate tax exemption remains roughly $7.16 million, with that infamous “cliff”—exceed by about 5%, and the entire estate becomes taxable.
  

• At the federal level, OBBBA permanently raises the estate, gift, and generation-skipping transfer (GST) tax exemption to $15 million per person, doubling to $30 million for married couples, starting January 1, 2026, and indexed for inflation thereafter  .

Federal Estate Tax Rates

• The top marginal federal estate, gift, and GST tax rate remains at 40%  .

Example: Why NY’s Cliff Still Bites

Suppose your estate (assets + real estate) is projected at $7.3 million:

• Federal: Well below the new $15 million threshold, so no federal estate tax.

• New York: You’ve exceeded the $7.16 million exemption—so the entire estate becomes subject to NY estate tax, potentially costing hundreds of thousands in taxes on just a few hundred thousand over the cliff.
  

Planning Strategies to Consider (for Estates Near the NY Cliff)

Even after OBBBA, if your net worth sits close to New York’s threshold, you’ll want to consider these strategies:

1. Annual Gifting
   Lifetime gifts to family or charitable causes reduce your taxable estate. New York does not impose a look-back period beyond federal rules, making it a useful tool to lower your estate under the cliff.
   

2. Roth IRA Conversions
   Convert traditional IRAs to Roth IRAs to shrink your taxable estate, avoid Required Minimum Distributions (RMDs), and leave a tax-free legacy. Remember, $1 million in a Roth is often more impactful than $1 million in a traditional IRA because of the tax-free growth and withdrawal.
   

3. Asset Structuring for Married Couples
   NY’s $7.16 million exemption applies per person. Structuring ownership—via trusts or separate titling—ensures both spouses’ exemptions are used effectively, avoiding the risk that the entire estate falls under tax when the first spouse passes.

Final Thoughts

• OBBBA gives high-net-worth individuals much more breathing room federally—up to $15 million per person, indexed going forward.

• But in New York, that $7 million cliff remains—and can still penalize estates that exceed it even modestly.

• Strategic planning—gifting, Roth conversions, asset structuring—is still crucial for those near that threshold.