Estate Tax Planning Strategies for New York Residents

If you’re a New York resident with significant assets, estate planning isn’t just a smart move – it’s a critical one. Unlike many states, New York has its own estate tax, with complex rules that can surprise even the most financially savvy investors. When combined with federal estate tax laws, the result can be a substantial tax liability for high-net-worth individuals and their heirs.

A financial advisor can help you navigate these risks with personalized financial planning strategies designed to align with both your long-term goals and New York’s distinct tax environment. In this guide, we break down how the state’s estate tax works, how federal rules still apply and what planning strategies can help minimize the impact on your legacy.

NEW YORK’S ESTATE TAX: WHAT YOU NEED TO KNOW

New York is one of the few states that still imposes a state-level estate tax and it has a particularly complex feature known as the “tax cliff.” For 2025, the estate tax exemption is $7,160,000. If your estate is just slightly above that threshold – more than 5% – the entire estate can become taxable, not just the amount over the exemption.

Estate tax rates in New York range from 3.06% to 16%, and unlike the Federal estate tax, spouses are not able to combine their New York State exemption amounts.

This makes early and efficient estate planning critical for anyone with substantial assets, particularly those who own real estate in high-cost areas like Manhattan, Brooklyn, Westchester or the East End of Long Island.

THE ROLE OF FEDERAL ESTATE TAXES

In addition to state taxes, New York residents must also consider federal estate tax, which applies to estates exceeding $13.99 million in 2025 (or $27.98 million for married couples).

But if your estate is even close to these limits, waiting to act could result in higher taxes and fewer planning options.

HOW TO MINIMIZE YOUR ESTATE’S TAX BURDEN

Navigating both federal and state estate tax systems takes more than drafting a will. A comprehensive estate strategy should take into account:

• The size and structure of your estate, including real estate, investments, businesses and retirement accounts
• How to reduce or eliminate exposure to New York’s estate taxes
• Long-term plans to transfer wealth across generations in a tax-efficient manner

Here are some tools and strategies to consider.

STRATEGIC GIFTING

Making financial gifts during your lifetime can be a powerful way to reduce your taxable estate. In 2025, you can give up to $19,000 per recipient without using any of your lifetime federal exemption. Larger gifts may count against your lifetime exemption but could ultimately reduce your estate tax burden.

New York does not have a gift tax, but certain gifts made within three years of your passing may be “clawed back” into your estate for estate tax purposes – so timing and documentation are important.

IRREVOCABLE TRUSTS THAT SUPPORT TAX-EFFICIENT PLANNING

Irrevocable Trusts may offer flexibility, protection and potential transfer tax savings. Here are some structures commonly used in high-net-worth estate planning:

• Irrevocable Life Insurance Trusts: Exclude life insurance proceeds from your taxable estate
• Grantor Retained Annuity Trusts: Transfer appreciating assets at reduced gift tax cost
• Qualified Personal Residence Trust: Gift a home at a reduced gift tax cost

Properly structured, these irrevocable trusts may help you reduce future estate tax exposure.

MULTIGENERATIONAL WEALTH STRATEGIES

Passing wealth through dynasty trusts can reduce transfer taxes over multiple generations. These approaches can also help avoid the generation-skipping transfer tax, which is an additional federal tax on transfers that bypass a generation.

Benefits may include:

• Providing long-term financial support for grandchildren
• Shielding assets from creditors
• Preserving family wealth and values for decades to come

OPTIMIZE NEW YORK REAL ESTATE IN YOUR PLAN

For many New York residents, real estate makes up a significant share of their estate – making it essential to plan for strategically. Here are a few key approaches to consider:

• Use of Revocable Trusts: These can help avoid probate and simplify asset transfers
• Limited Liability Companies: Useful for managing investment properties or shared real estate across generations
• Step-Up in Basis: At death, real estate typically receives a step-up in cost basis to market value, which may reduce capital gains tax if the property is later sold

But don’t overlook the state-specific nuance: If the value of your real estate pushes your estate above New York’s exemption threshold (even slightly), it could trigger significant taxes.

PHILANTHROPIC PLANNING AS A TAX STRATEGY

Charitable giving can be a powerful way to support the causes you value while also reducing your estate and income tax liabilities. The right giving vehicles can help you create lasting impact, both personally and financially. Consider the following options:

• Donor-Advised Funds: Make a charitable contribution, receive an immediate tax deduction and recommend grants to nonprofits over time
• Charitable Remainder Trusts: Generate income for yourself or your beneficiaries for life or a fixed term, with the remainder going to charity
• Private Foundations: Build a long-term philanthropic legacy with greater control, flexibility and opportunities for family involvement

When thoughtfully integrated into your estate plan, these tools can deliver meaningful tax benefits while helping you shape the future you want to see.

COMMON MISUNDERSTANDINGS ABOUT ESTATE TAXES IN NEW YORK

“Estate tax only applies at the federal level.”

“Gifting is a foolproof way to reduce my taxable estate.”

⇒ Not always. New York’s three-year lookback rule could bring certain gifts back into your estate.

“If I don’t have $7 million, I’m safe.”

⇒ Not necessarily. Real estate, retirement accounts and life insurance can add up quickly, and exemptions may not apply, so more estates could become taxable.

BUILD YOUR LEGACY IN NEW YORK WITH STRATEGY AND PURPOSE

Estate and tax laws – both in New York and at the federal level – are subject to change. Delaying your planning could mean missed opportunities, higher tax exposure or less flexibility for your loved ones. Whether your goals include preserving wealth, supporting future generations, protecting a family business or giving back through philanthropy, early action helps put you in control.

At Edelman Financial Engines, we work closely with high-net-worth individuals and families to design financial plans with estate planning strategies that align with their values and help minimize tax burdens. Our advisors understand the unique challenges of New York estate law and, in concert with your estate attorney and tax professional, we provide guidance that evolves with your life and the legal landscape. Take the first step toward shaping a legacy that reflects your vision and helps safeguard your wealth.