New York has its own estate tax that applies to estates over $7.35 million in 2026, with rates up to 16%. What most people do not know is that New York’s estate tax cliff means going even slightly over that threshold can trigger a tax bill on your entire estate, not just the excess. Ken Seligson of Seligson Law explains who owes New York estate tax, how the cliff works, and what steps you can take now to protect what you have built.
New York estate tax catches many families off guard. Most people assume that if they do not owe federal estate tax, they are in the clear. But New York has its own separate estate tax with its own rules, and those rules can be far more punishing than most people expect.
Below, estate planning attorney Ken Seligson explains how the New York estate tax works, who has to pay it, and what you can do now to protect your family.
What Is the New York Estate Tax and Who Has to Pay It
New York State imposes an estate tax on the estates of people who die while living in New York or who own real property or tangible personal property located in New York. The tax is paid by the estate before assets are distributed to your beneficiaries. Your heirs do not pay it directly.
For 2026, the New York estate tax exemption is $7,350,000. If the total value of your estate is at or below that amount, no New York estate tax is owed. If it exceeds that threshold, the estate owes tax at graduated rates ranging from 3.06% to 16%, depending on the total value.
New York does not have an inheritance tax. The people who receive your assets do not pay tax on what they inherit. The estate pays the tax before anything is distributed.
What Counts Toward Your Estate
Your taxable estate includes everything you own or have an interest in at the time of death, including your home and other real estate, bank and investment accounts, retirement accounts in some circumstances, life insurance proceeds if you own the policy, business interests, and personal property.
The New York Estate Tax Cliff: The Rule That Surprises Most Families
At the federal level, if your estate exceeds the exemption, only the amount above the threshold is taxed. New York works differently. Under New York Tax Law Section 952, New York gives estates a credit that effectively cancels out the tax on the first $7.35 million. But if your estate exceeds the exemption by more than 5%, that credit is eliminated. With no credit to offset the tax, your entire estate becomes taxable, not just the portion above the threshold.
How the Cliff Plays Out In 2026
The 5% cliff threshold for 2026 is $7,717,500 (105% of $7,350,000).
- Below the cliff: If your estate is worth $7,400,000, just $50,000 over the exemption, you owe tax only on the $50,000 excess at a rate of roughly 3.06%. That is a manageable bill.
- Over the cliff: If your estate is worth $7,750,000, just $32,500 over the cliff threshold, you owe tax on the entire $7,750,000. At that value, your New York estate tax bill could exceed $739,000.
The difference between an estate worth $7,717,499 and one worth $7,717,501 is enormous.
Married Couples Cannot Share Their Exemptions in New York
At the federal level, a surviving spouse can use their deceased spouse’s unused exemption (referred to as “portability”), effectively doubling their combined protection. New York does not allow this. Each spouse has their own $7.35 million exemption, and it cannot be transferred. This makes planning for married couples in New York more complex than federal planning alone would suggest.
Some strategies can help married couples make full use of both exemptions, but they need to be structured correctly. Seligson Law works with individuals, couples, and business owners across New York to reduce estate tax exposure before it becomes a problem. Call 213-293-6692 to get started.
How New York Estate Tax Interacts With Federal Estate Tax
New York and the federal estate tax are two separate taxes with two separate sets of rules. You can owe one without owing the other. Smaller estates may only owe New York state tax with no federal exposure at all. Larger estates, those above $15 million, could owe both. An attorney who understands both systems can help you minimize what you owe at each level.
Strategies to Reduce or Avoid New York Estate Tax
The good news is that there are legal strategies available to New York residents that can reduce or eliminate estate tax exposure. None of them works if you wait until a health crisis is already underway. They require time to be effective.
Lifetime Gifting
New York has no gift tax. This means you can give assets away during your lifetime and permanently remove them from your taxable estate without paying any state-level gift tax. The federal annual gift tax exclusion for 2026 is $19,000 per recipient. This means you can give $19,000 to as many people as you choose each year without using your lifetime exemption.
The three-year lookback rule: There is one important exception. Under New York Tax Law Section 954, gifts made within three years before your death may be added back into your New York taxable estate for purposes of calculating the tax. Gifts made more than three years before death are outside your estate for New York purposes.
Irrevocable Trusts
Transferring assets into a properly structured irrevocable trust removes them from your taxable estate. There are several trust structures used for estate tax planning in New York, including irrevocable life insurance trusts, spousal lifetime access trusts, and grantor retained annuity trusts.
Each has different mechanics and tradeoffs. An estate planning attorney can help you determine which structure fits your situation.
Spousal Credit Shelter Trusts
Because New York does not allow portability (the ability to pass your unused exemption to your spouse), married couples often use a credit shelter trust, sometimes called a bypass trust, to make full use of both spouses’ exemptions.
When the first spouse dies, assets up to the exemption amount are placed into the trust rather than passing outright to the surviving spouse. Those assets are not included in the surviving spouse’s estate when they die, effectively allowing both exemptions to be used and potentially sheltering up to $14.7 million from New York estate tax for a married couple in 2026.
Assets held in the trust also avoid probate entirely, saving your family additional costs.
Charitable Giving
Assets left to a qualified charity are not subject to New York estate tax. For estates near or above the cliff threshold, a charitable bequest can reduce the taxable estate below the exemption or below the cliff, potentially eliminating a significant tax bill.
Talk to a New York Estate Planning Lawyer at Seligson Law
New York’s estate tax cliff means that the difference between a well-planned estate and an unplanned one can be hundreds of thousands of dollars. The strategies that work best take years to implement, which is why the right time to start is now.
Call Seligson Law at 213-293-6692 or send us a message to ensure your estate plan is structured to reduce or eliminate unnecessary state tax when the time comes.
Frequently Asked Questions About Who Has to Pay New York Estate Tax and How to Avoid It
Does New York have an estate tax?
Yes. New York State imposes its own estate tax separate from the federal estate tax. For 2026, the New York estate tax exemption is $7,350,000, which means that estates above that threshold owe tax at rates from 3.06% to 16%.
What is the New York estate tax cliff?
The cliff is a New York rule that removes your entire exemption if your estate exceeds the $7.35 million threshold by more than 5%. Once your estate crosses $7,717,500 in 2026, the state taxes your entire estate rather than just the amount above the threshold. Seligson Law can help you plan around the cliff.
What is the New York estate tax rate for 2026?
New York estate tax rates run from 3.06% to 16% on a graduated scale. The rate that applies depends on the total taxable value of your estate. The full rate schedule is published in New York Tax Law Section 952.
Does New York have a gift tax?
No. New York does not have a gift tax. You can make lifetime gifts to reduce your taxable estate without paying any state-level gift tax. However, gifts made within three years before your death may be added back into your New York taxable estate. Gifts made more than three years before death are outside your estate for New York purposes.
Can married couples double the New York estate tax exemption?
Not automatically. Unlike the federal system, New York does not allow portability of the estate tax exemption between spouses. Each spouse has their own $7.35 million exemption. A properly structured credit shelter trust can help married couples make full use of both exemptions and potentially shelter up to $14.7 million from New York estate tax.
Who has to file a New York estate tax return?
Estates that meet or exceed the filing threshold must file Form ET-706 with the New York State Department of Taxation and Finance within nine months of the date of death. An extension may be available. Even estates that owe no tax may be required to file a return if the gross estate exceeds certain thresholds.
How can I reduce my New York estate tax exposure?
The most effective strategies include lifetime gifting, irrevocable trusts, spousal credit shelter trusts, and charitable bequests. All of these require time to implement and work best when put in place well before they are needed. Contact Seligson Law to discuss which strategies make sense for your situation.
