Tax and Estate Planning Strategies for New York City Residents

Strategies to reduce tax exposure and protect your estate in New York

New York state, unlike many states, has its own estate tax, with complex rules that can catch investors off guard. When combined with federal estate tax laws, this can lead to a significant tax burden for high-net-worth individuals and their heirs.

New York State’s Estate Tax – Major Takeaways

As a New York resident, you have to navigate a unique estate tax landscape in 2025. While the federal estate tax exemption is $13.99 million per individual—permanently extended under the One Big Beautiful Bill Act (OBBBA) signed on July 4, 2025—New York State’s exemption is far lower at $7.16 million per person. Exceeding this threshold triggers progressive rates up to 16%, and surpassing 105% of the exemption ($7.518 million) triggers a complex feature called the “estate tax cliff,” which taxes your entire estate, not just the amount over the exemption. This makes proactive and efficient estate planning essential for anyone with significant assets, especially those who own real estate in high-cost areas like Manhattan, Brooklyn, and Westchester.

Federal Estate Taxes

In addition to state taxes, New York residents must also consider the federal estate tax, which applies to estates over $13.99 million in 2025 (or $27.98 million for married couples). If your estate is near these thresholds, delaying action could result in higher taxes and fewer planning options.

Minimizing the New York Estate Tax Burden – Key Points to Consider

Navigating both federal and state estate tax systems requires more than just drafting a will. A thorough estate plan should consider:

• 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

Five Strategies to consider if you are a New York resident

If applicable and properly included in your estate plan, various tools can potentially offer substantial tax benefits.

Leverage Lifetime Gifting to Shrink Your Taxable Estate

One of the simplest yet most effective ways to reduce your New York taxable estate is through annual gifting, which removes assets from your estate before death. In 2025, the federal annual gift tax exclusion allows you to transfer up to $19,000 per recipient ($38,000 for married couples via gift-splitting) without dipping into your lifetime exemption or triggering gift taxes. New York imposes no separate gift tax, but watch the three-year look-back rule: Taxable gifts made within three years of death are added back to your estate for New York estate tax purposes (annual exclusion gifts are exempt from this).

For larger transfers, use your federal lifetime exemption ($13.99 million) to gift beyond the annual limit—future appreciation escapes taxation entirely. This strategy is particularly useful if your estate hovers near the $7.16 million threshold, helping you avoid the cliff altogether. Example: A couple with two children could gift $152,000 annually ($38,000 × 4) tax-free, potentially removing millions over time.

Consider Using an Irrevocable Trust for Asset Protection and Tax Efficiency

In New York, irrevocable trusts are generally more beneficial for tax management than revocable trusts because they can help reduce estate taxes by removing assets from your taxable estate. Revocable trusts do not offer this benefit, as the assets remain part of the grantor’s estate. While irrevocable trusts come with the significant drawback of giving up control and flexibility over the assets, they can 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.

Incorporate Dynasty Trusts for Multigenerational Wealth Planning

This strategy reduces generation-skipping transfer taxes and shields assets from creditors. As the federal exemption is now permanent at $13.99 million, consider gifting aggressively to family trusts before appreciation causes you to exceed New York’s lower limit.

Benefits may include:

• Providing long-term financial support for grandchildren
• Protecting 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 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

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

It is also worth noting that, in New York state, you can name a beneficiary for real estate through a Transfer-on-Death (TOD) Deed, which went into effect in July 2024. This allows you to designate a recipient who will automatically inherit your property upon your death, bypassing probate court. To be valid, the deed must be signed by you in the presence of a notary and two witnesses, and then recorded in the county clerk’s office where the property is located before your death.

Charitable Planning as a Tax Strategy

Philanthropic giving can also be a way to reduce your estate and income tax liabilities while supporting the causes you believe in. Options to consider:

• 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.

Other Important Considerations

• Beneficiary Designations: Assets such as life insurance policies, retirement accounts, and “payable on death” bank accounts pass directly to named beneficiaries and bypass your will. Ensure these designations are up to date and align with your overall plan to avoid unintended tax consequences.
• Probate: The probate process in New York can be time-consuming and expensive. Utilizing trusts and proper beneficiary designations can help in potentially avoiding or simplifying this process.
• Powers of Attorney and Health Care Proxies: Designate agents to make financial and medical decisions in the event of incapacity.
• Digital Assets: Plan for what happens to your digital properties after your death.

When planning your estate in New York State, key considerations include drafting essential legal documents, strategically planning for state and federal taxes, and understanding the local laws around inheritance and probate. Tax and estate planning for New York residents requires a holistic approach, balancing immediate tax savings with long-term wealth preservation. Remember, these are general guidelines; always consult a qualified tax advisor or estate attorney for personalized advice. Working with an experienced New York estate planning attorney is highly recommended to ensure compliance with specific state regulations. 

FAQ-  About Estate Taxes in New York

Does New York have an inheritance tax?

No, New York does not have an inheritance tax, which is paid by the heirs. Instead, it has an estate tax, which is paid by the estate itself based on its overall value.

Do revocable trusts avoid estate taxes in New York State?

No, While assets in a revocable (or living) trust can bypass probate, they are still considered part of the estate for tax calculation and are subject to estate taxes.

Non-probate assets are not taxable: Assets that transfer outside of the probate process, such as those with a designated beneficiary (e.g., life insurance), are still included in the total estate value for tax purposes.

For New York residents, does the Estate tax only apply at the federal level?

No

Is gifting a foolproof way to reduce my taxable estate in New York?

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

If I don’t have $7 million, am I safe from estate taxes in New York City?

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

What are New York’s estate tax rates?

New York’s estate tax rates are graduated, ranging from 3.06% to 16%, depending on the size of the taxable estate.