New York Estate Tax Guide

Estate taxes in the U.S. are designed to tax the transfer of wealth after death. At the federal level, they apply only to the “larger”  estates. But New York has its own rules — and they’re far less forgiving.

At The Law Offices of Vlad Portnoy, we’ve helped hundreds of NY residents manage their estates and minimize taxes for over 15+ years. This guide breaks down who’s affected, how the tax works, and what strategies can help reduce or avoid it. Whether you’re years away from retirement or managing an estate right now, understanding these rules is a critical step in protecting what you’ve built.

Does New York Have an Estate Tax?

Yes — New York has an estate tax, and it can catch people off guard.

Let’s clear up the confusion first. An estate tax is a levy on the total value of a person’s assets at the time of their death. This is different from income tax, and that tax is paid by the estate itself, before any money or tangible personal property is passed on to heirs. In contrast, an inheritance tax is paid by the person receiving the inheritance. New York has the former, not the latter — which means your beneficiaries don’t get taxed, but your estate might.

This distinction matters because the impact is felt early. If your estate exceeds the state’s exemption threshold (we’ll get into that next), the tax bill can reduce the total value your heirs receive — sometimes significantly. And because New York’s exemption is lower than the federal limit, families who thought they were in the clear often aren’t.

So, does New York have an estate tax? Yes. And depending on the size of your estate, that answer might come with a price tag.

New York State Estate Tax Exemption and Rates

If your estate is worth more than $7.16 million in 2025, New York wants a cut.

That number — called the basic exclusion amount — sets the line between tax-free and taxable estates. Unlike the federal exemption, which is much higher, New York’s threshold can affect many residents, especially those with real estate, retirement accounts, or business assets.

The Estate Tax “Cliff”

Crossing the line by even a dollar doesn’t just mean paying tax on the excess. Thanks to New York’s so-called “estate tax cliff,” if your estate exceeds the exemption by more than 5%, you lose the entire New York estate tax exclusion — and your estate is taxed from dollar one. 

For 2025, the New York estate tax cliff hits at $7,518,000. That’s not a warning. That’s policy.

Tax Rate Structure

New York applies a sliding scale to taxable estates, with rates ranging from 3.06% to 16%. The exact rate depends on how far over the threshold your estate falls. The top rate applies to estates over $10.1 million.

Full rate tables are included in the state’s Form ET-706 instructions.

Federal vs. New York Estate Tax

When people think about estate taxes, they usually think of federal taxes. And for good reason — the federal estate tax is the one you hear about in the news, especially when Congress debates changes to the exemption amount or tax rate.

But here’s the catch: most estates don’t owe federal estate tax. That’s because the federal exemption is high — $13.99 million per person in 2025. Unless your estate crosses that line, the IRS won’t get involved.

New York, on the other hand, plays by its own rules. The state has its own estate tax system with a much lower exemption and a nasty twist called the “cliff.” For many New Yorkers, the state tax is the one to watch — even if the federal government never knocks.

2025 Estate Tax Comparison

 

	Federal Estate Tax	New York State Estate Tax
Exception Ammunition	$13.99 million	$7.16 million
Tax Rate	Flat 40%	3.06% to 16% (progressive)
Cliff Penalty	No	Yes — the entire estate becomes taxable if the value exceeds 105% of the exemption
Who Pays	Estates over $13.99	Estates over $7.16M

 

Without careful planning, it’s entirely possible for an estate to owe nothing to the IRS — but still owe hundreds of thousands to New York State. That’s why proper estate planning here isn’t just about the big, headline-grabbing numbers. It’s about understanding how both systems work together — and how to keep them from working against you.

Who Is Affected by New York’s Estate Tax?

You don’t have to be ultra-wealthy to face New York’s estate tax. In fact, many families find themselves on the hook without realizing it — especially if they’ve built wealth through real estate or long-term investments.

In short, New York’s estate tax doesn’t just apply to the ultra-rich. It applies to anyone who’s built a life of value — and wants to pass it on without giving a big chunk to the state.

Homeowners in High-Value Markets

A brownstone in Brooklyn. A co-op on the Upper West Side. A weekend home in the Hudson Valley. Real estate in New York doesn’t have to be flashy to be expensive. 

Property values alone can push an estate over the $7.16 million threshold — even if there’s not a lot of liquid cash in the picture.

Business Owners and Investors

Owning a closely held business, a successful LLC, or a significant investment portfolio can quietly grow an estate’s value. 

And because New York doesn’t distinguish between different types of assets when calculating estate size, it’s easy to cross the line — especially if the business has appreciated over time or owns property.

High Earners with Modest Lifestyles

Even individuals who live modestly may accumulate significant wealth through retirement accounts, appreciated stock, or life insurance policies. 

If those assets aren’t planned for properly, they can tip an estate over the limit.

Families Near the Threshold

Perhaps the trickiest group: those hovering just below the $7.16 million mark. Because of the estate tax cliff, a small increase in asset value — from market gains, a home appraisal, or a last-minute inheritance — can erase the entire exemption and trigger a full tax bill. 

It’s not just about being over. It’s about being too close.

How to Minimize or Avoid New York Estate Tax

New York’s estate tax can be steep — but it’s not unavoidable. With smart, proactive planning, it’s possible to reduce (or even eliminate) what your estate owes. 

The key is to act early. Once you hit the exemption threshold, options narrow fast.

Lifetime Gifting Strategies

One of the simplest ways to reduce your taxable estate value is to give assets away while you’re still alive. There currently is no New York gift tax, and the IRS allows annual exclusion gifts (up to $18,000 per recipient in 2024) that don’t count against your federal lifetime limit. 

Gifting to children, grandchildren, or even trusts can help pull down your estate value over time.

Irrevocable Life Insurance Trusts (ILITs)

Life insurance policies are often overlooked — but they’re counted as part of your estate if you own the policy. 

By transferring ownership of the policy to an ILIT, the death benefit is removed from your estate.  That way, your heirs get the full payout, and it doesn’t contribute to a potential tax bill.

Charitable Giving and Trusts

Donating to charity can reduce your taxable estate and support causes you care about. Options like Charitable Remainder Trusts (CRTs) or Charitable Lead Trusts (CLTs) allow you to structure giving in a way that benefits your heirs and keeps New York out of your wallet.

Spousal Lifetime Access Trusts (SLATs)

SLATs let one spouse gift assets to a trust for the surviving spouse’s benefit — removing the value from the estate while still keeping it accessible. 

It’s a useful option for couples who want to reduce estate size without sacrificing financial flexibility.

Qualified Personal Residence Trusts (QPRTs)

A QPRT allows you to transfer a home to heirs at a reduced value, while retaining the right to live there for a set number of years. It’s a smart move for high-value properties, particularly in markets like NYC or the Hamptons, where real estate can push an estate over the edge.

Start Early, Plan Smart

None of these strategies work on autopilot. They take time, paperwork, and legal precision. But for families hoping to preserve wealth — and avoid leaving their heirs with a surprise tax bill — the effort pays off. 

A proper estate plan doesn’t just transfer assets. It protects them from unnecessary erosion.

When and How the Estate Tax Is Paid

Estate taxes don’t wait around — and neither should the people handling the estate. In New York, the timeline for filing and paying the estate tax is tight, and missing key deadlines can lead to costly penalties.

Filing Timeline and Deadline

New York estate tax returns are generally due nine months after the date of death. That matches the federal timeline, but even if no federal tax is owed, the state still expects its paperwork on time. 

An automatic six-month extension is available — but it only buys time to file, not to pay.

Required Forms and Documentation

To file, the estate must submit Form ET-706, along with a federal estate tax return (Form 706), even if the estate isn’t taxable at the federal level. Supporting documents include appraisals, bank statements, and a full accounting of the estate’s assets and debts. 

Executor’s Role and Responsibilities

The person responsible for filing the return and paying the tax is usually the executor (or administrator, if there’s no will). That role includes collecting asset values, securing legal documents, and making sure the return is complete and accurate. 

The executor also handles payment, either from estate funds or through the sale of assets if needed.

Penalties for Late Filing or Underpayment

Miss the deadline, and New York starts adding interest and penalties. Late payments are charged interest from the original due date, and if the return is more than 60 days late, the penalty can be as much as 10% of the total tax due. That’s money that comes out of the estate — and away from the heirs.

Bottom line: The estate tax clock starts ticking immediately after death. And unless someone’s keeping an eye on the calendar (and the paperwork), the cost can go up fast.

Work with a New York Estate Planning Attorney

Estate tax law is always evolving and rarely simple. Between fluctuating exemption amounts, the estate tax cliff, and the interplay between federal and state rules, even well-meaning plans can come up short without experienced guidance.

In addition to a financial advisor, working with a qualified estate planning attorney means more than just filling out forms. It means building a strategy that protects your assets, honors your wishes, and minimizes the risk of an unexpected tax bill down the line. Whether you’re planning for decades from now or facing decisions today, thoughtful planning can preserve more of what you’ve built for the people you love.

Vlad Portnoy, ESQ., has helped individuals and families across New York navigate estate planning with clarity and confidence. We’ll help you understand the implications of the New York estate tax rate, how it relates to the federal estate tax return, and do everything possible to set you up for long-term success.

If you’re ready to take the next step, schedule a consultation and start the conversation. Contact us today!