The Upcoming Federal Estate Tax Sunset: What You Need to Know
Many high-net-worth clients are busy planning for the possibility of a Federal estate tax exclusion sunset scheduled to occur on January 1, 2026. This will occur automatically unless Congress is able to pass major budget legislation to avert a per person reduction in the Federal gift and estate tax exclusion from just under $14,000,000 in 2025 to approximately $7,500,000.
The New York Estate Tax Exemption Is Lower Than the Federal
Aside from that, high-net-worth New York residents should not forget about the New York Estate Tax. As of January 1, 2025, New York State’s estate tax exemption amount is $7,160,000. The exemption amount is much lower than the federal exemption, requiring heightened attention to planning to maximize the use of the exemption, which can be inconsistent with traditional planning that focuses on federal estate tax savings.
No Portability Under New York Estate Tax Law
In addition, unlike under Federal law, the New York estate tax statute does not allow for “portability”, meaning that a surviving spouse is unable to avail herself or himself of the deceased spouse’s unused exclusion. Stated differently, under the New York statute, each spouse has his or her own exemption, and must use it or lose it.
The Estate Tax Cliff: Use It or Lose It
It is routinely understood that a married couple, from a Federal estate tax exclusion standpoint, has nearly $28,000,000 of combined exemptions. All or portions of these exemptions can be used to save estate taxes at either or both spouse’s deaths. The same cannot be said for the New York exemption. Under the New York statute, estates valued at or below 105% of the New York exemption amount (the so-called “estate tax cliff”) are not subject to New York estate tax. However, unless the assets pass to the surviving spouse or charities, estates with values exceeding the exemption amount by more than 5% lose the exemption entirely, resulting in taxation on the full estate value.
Avoiding Unnecessary Tax: Why Estate Planning Matters
Without proper planning, a New York resident’s estate could end up paying estate tax to the State of New York on 100% of the estate’s assets as well as on the assets of a surviving spouse’s estate, and could lose the exemptions entirely.
Speak With Our Tax, Trusts & Estates Team
The attorneys in our Tax, Trusts & Estates Practice Group routinely advise clients on the proper planning to minimize the New York Estate Tax, you can contact our team at tte@mblawfirm.com