The passage of the One Big Beautiful Bill Act in July 2025 permanently increased the federal estate and gift tax (FEGT) exemption to $15M per person beginning on January 1, 2026. Consequently, an individual can transfer up to $15M ($30M for married couples) during life and upon death without incurring a FEGT. Yet, New Yorkers would be remiss not to be cognizant of NY’s own estate tax: One can transfer only up to $7.16M to others without incurring a NY estate tax at death, and while there’s no gift tax in NY, transfers made within three years of death are clawed back. Additionally, if your estate is more than 5% greater than NY’s exemption, and your spouse is not the beneficiary of your estate, you fall off NY’s estate tax “cliff” and the entire estate (not just the excess) is taxed back to Dollar #1. How can a person of mid-range wealth avoid the NY estate tax?
- Buy a Vacation Home
Real property outside of NY State isn’t included in one’s NY taxable estate. By purchasing a vacation home or other assets (e.g., gold) in another state, you can remove the value of the assets from your taxable estate in NY.
- Utilize Trusts to Make Gifts
Making outright gifts during life reduces the size of your taxable estate, but it’s difficult to give up control over hard-earned savings, particularly to loved ones who aren’t mature enough to handle the assets appropriately and/or may be subject to lawsuits, divorce, or bankruptcy. A Children’s Trust allows you to designate a trusted person to manage the assets for your loved one and set parameters on how the funds can be spent while simultaneously removing the assets from your NY estate. It also protects assets from your (and your beneficiary’s) creditors.
- Purchase Life Insurance in the Name of an Irrevocable Life Insurance Trust (ILIT)
An ILIT is a trust that owns your life insurance policy. You remain the insured, but because you aren’t the owner, the proceeds aren’t subject to NY’s estate tax at death. An existing policy can also be retitled to an ILIT and the proceeds will be excluded from your taxable estate provided you live three years from the date of transfer.
- Divide Assets Between Spouses
In NY, if the estate tax exemption is not used upon the death of the first spouse, it is lost, leaving the surviving spouse with only one exemption. By dividing a married couple’s assets between two RLTs (one per spouse) and structuring both RLTs so when the first spouse dies, the assets titled to the RLT pass to the survivor through a Disclaimer Trust, Credit Shelter Trust, and/or QTIP (Qualified Terminable Interest Property), the estate tax exemption of the first spouse to die is maintained.
There are many ways to avoid NY’s estate tax and preserve your life savings for your family in a financially strategic and mindful manner. Consult your local Trusts & Estates attorney, to create an individualized plan that aligns with your goals.
