Estate Planning in New York — Tax-Smart Wealth Protection

Yes — New York imposes its own estate tax with a $6.94M exemption (2026). This is separate from and in addition to the federal estate tax. New York’s estate tax has a dangerous ‘cliff’ provision: if your taxable estate exceeds 105% of the exemption ($7.29M), you lose the ENTIRE exemption and owe tax on your full estate. This means a $7.3M estate could owe over $500,000 in NY state estate tax alone. Combined with federal estate tax (40% on amounts over ~$7M after 2026), New York estates face effective rates exceeding 50%.

New York’s estate tax ‘cliff’ means that if your estate exceeds 105% of the exemption ($7.29M in 2026), you don’t just pay tax on the excess — you pay tax on your ENTIRE estate from dollar one. This can result in hundreds of thousands in unexpected tax. Strategies to avoid the cliff: (1) Gift assets to reduce your estate below 105%. (2) Use irrevocable trusts to remove assets. (3) Make charitable bequests to bring the taxable estate below the threshold. (4) Consider a credit shelter trust for married couples. A MERNA™ strategist can model your exact exposure and recommend the optimal approach.

Many wealthy New Yorkers consider relocating to Florida or Texas (no state estate tax). However, New York aggressively audits ‘change of domicile’ claims. You must prove: (1) You spend fewer than 183 days in NY. (2) You’ve abandoned your NY domicile (sold/rented your home, changed voter registration, driver’s license, doctors, etc.). (3) You’ve established a new domicile elsewhere. The NY Tax Department looks at ‘near and dear’ items — where are your family photos, pets, valuables? If you maintain a NY apartment, you’re at risk. A MERNA™ strategist can help you execute a clean domicile change or find strategies that work without relocating.

New York taxes trusts based on where the grantor was domiciled when the trust became irrevocable. If you create an irrevocable trust while living in NY, it may be subject to NY income tax on accumulated income — even if the trustee and beneficiaries live elsewhere. However, assets in an irrevocable trust are generally excluded from your NY taxable estate. Key strategies: (1) Incomplete Gift Non-Grantor Trusts (INGs) — can avoid NY income tax. (2) Delaware or Nevada situs trusts — may avoid NY taxation. (3) Properly structured irrevocable life insurance trusts (ILITs) — keep insurance proceeds out of your NY estate.

NYC co-ops and condos have unique estate planning challenges: (1) Co-op boards can reject transfers — your trust must be structured to satisfy board requirements. (2) Many co-ops require board approval for trust ownership — work with the board BEFORE transferring. (3) Condos are easier to transfer to trusts but still require proper deed recording. (4) Both co-ops and condos count toward your NY estate tax threshold. (5) If your apartment has appreciated significantly, a Qualified Personal Residence Trust (QPRT) can transfer it to heirs at a fraction of current value for gift tax purposes.

New York business owners face double exposure — state AND federal estate tax. A $10M business could trigger $800K+ in NY estate tax plus $1.2M+ in federal estate tax. Protection strategies: (1) Family Limited Partnership (FLP) — transfer business interests at 30-40% valuation discounts. (2) Grantor Retained Annuity Trust (GRAT) — freeze business value for estate tax purposes while retaining income. (3) Installment sale to Intentionally Defective Grantor Trust (IDGT) — remove future appreciation from your estate. (4) Buy-sell agreement funded by life insurance — provides liquidity without forcing a sale. (5) Annual gifting of minority interests — leverage the $18,000 annual exclusion.

New York has an estate tax but NO inheritance tax. The distinction: Estate tax is paid by the estate before distribution to heirs. Inheritance tax (used by states like Pennsylvania and New Jersey) is paid by the individual heirs based on their relationship to the deceased. New York’s estate tax is calculated on the total value of the estate, with rates ranging from 3.06% to 16%. The tax is paid from estate assets before beneficiaries receive their inheritance. This means your heirs don’t personally owe the tax — but it reduces what they receive.

For federal purposes, you can gift $18,000 per person per year (2026) without using your lifetime exemption. Married couples can gift $36,000 per person. For larger gifts: you can use your federal lifetime exemption ($13.61M in 2025, dropping to ~$7M in 2026). However, New York does NOT have a separate gift tax — but gifts made within 3 years of death are ‘clawed back’ into your NY taxable estate. Strategy: Make large gifts NOW (before 2026) to lock in the higher federal exemption, and ensure you survive 3+ years to avoid NY clawback.

Yes — even if you’re below the estate tax threshold, you still need: (1) A will or trust to avoid NY probate (which is public, slow, and expensive — 2-5% of estate value in fees). (2) Healthcare proxy and living will — NY requires specific forms. (3) Power of attorney — NY’s statutory short form POA has strict requirements. (4) Beneficiary designation review — ensures retirement accounts and insurance pass correctly. (5) Trust for minor children — avoids court-supervised guardianship of assets. Plus, with NY’s $6.94M threshold and the cliff rule, even a $5M estate should plan proactively in case assets appreciate.

If you own property in New York AND other states, your estate may face ‘ancillary probate’ — a separate probate proceeding in each state where you own real property. This is expensive, time-consuming, and public. A revocable living trust avoids ancillary probate entirely by holding title to out-of-state property. Additionally, you may owe estate tax in multiple states. New York taxes your worldwide estate if you’re a NY domiciliary, but provides a credit for taxes paid to other states on property located there. Proper planning can minimize or eliminate double taxation.