Your New York State estate tax exemption for 2025 comes with a hidden trap that could devastate your estate plan. Just imagine—if your estate exceeds the exemption by just 5%, your entire exemption disappears, and your heirs could face a massive tax bill.
In 2025, New York raised its estate tax exemption to $7,160,000, still significantly less than the federal exemption of $13.99 million. But what really sets New York apart is the harsh “estate tax cliff.” If your estate exceeds the exemption by more than 5%—just $358,000 more—you lose the entire exemption, making the full estate taxable from the first dollar. That means your family could owe hundreds of thousands in unexpected estate taxes.
We understand how overwhelming estate planning can be. At Alatsas Law Firm, we’re here to help you navigate the complexities of New York estate tax law, identify hidden pitfalls, and protect the legacy you’ve worked so hard to build.
What Is the New York Estate Tax Exemption in 2025?
Current exemption amount and inflation adjustment
The New York State estate tax exemption has increased to $7,160,000 for 2025, adjusted annually for inflation. That’s a modest increase from 2024’s $6.94 million—but the risk of falling off the “estate tax cliff” remains just as severe.
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Estates that exceed the exemption face tax rates from 3.06% to 16% on the taxable amount.
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However, if your estate exceeds 105% of the exemption amount—that is, $7,518,000 in 2025—you lose the exemption entirely.
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This makes the entire estate subject to taxation, not just the amount over the threshold.
How it compares to the federal exemption
In 2025, the federal estate tax exemption is $13.99 million—almost double New York’s limit. This difference creates several key issues:
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No portability in NY: Unlike the federal exemption, New York doesn’t allow a surviving spouse to use a deceased spouse’s unused exemption. Without special planning, that exemption is lost forever.
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Three-year gift clawback: While New York doesn’t impose its own gift tax, it does “claw back” any gifts made within three years of death into your taxable estate.
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The cliff effect: The federal estate tax has no cliff. In contrast, New York’s rule can result in confiscatory effective tax rates if you cross the threshold.
Understanding the NY Estate Tax Cliff
What is the NYS estate tax cliff?
The cliff is a punitive feature of New York’s estate tax law. While most tax systems only tax the amount above an exemption threshold, New York’s cliff eliminates the entire exemption if your estate exceeds 105% of the exemption amount.
How the 105% rule works in 2025
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Estate ≤ $7,160,000: No NY estate tax.
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Estate > $7,160,000 but < $7,518,000: Tax only on the excess.
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Estate ≥ $7,518,000: Entire estate is taxable—no exemption.
Real-life examples
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Estate worth $7,159,999: No NY estate tax.
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Estate worth $7,200,000: Tax is owed only on $40,000.
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Estate worth $7,518,001: Full $7.5+ million is taxed. This could result in over $600,000 in estate taxes—a massive penalty for going just a few thousand dollars over.
Why This Rule Is Unique to New York
New York’s cliff makes its estate tax one of the most aggressive in the country:
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Most states either don’t have estate taxes or follow the federal model.
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The cliff can create effective tax rates above 100% on the overage.
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This makes precise planning critical, especially for estates near the threshold.
Hidden Triggers That Could Cost You Thousands
Even with careful planning, certain overlooked issues can unintentionally push your estate over the limit:
1. Gifts made within 3 years of death
New York’s clawback rule includes gifts made within 3 years of your passing in the estate’s total value. This can trigger estate tax liability even if you’ve made lifetime gifts to reduce your taxable estate.
Exempt gifts:
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Gifts made while a non-resident of NY
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Gifts made prior to April 1, 2014
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Gifts made between January 1–15, 2019
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Out-of-state tangible property
2. Improperly titled assets
Accounts titled “joint with right of survivorship,” “in trust for,” or “payable on death” can bypass your will—but still be counted in your estate. Improper structuring of these assets may undermine your plan.
3. Outdated wills and trusts
If your documents don’t account for New York’s lack of portability or the cliff rule, your estate plan could fail to protect assets. Old wills that leave everything outright to a spouse could waste the first spouse’s exemption.
4. Uncoordinated beneficiary designations
Retirement accounts and life insurance policies with outdated or incorrect beneficiaries can ruin carefully crafted trust provisions—especially if left to minor children or bypassing a protective trust.
Ways to Protect Your Family from the NY Estate Tax Cliff
✅ Credit Shelter Trusts
For married couples, a credit shelter trust (or “bypass trust”) can preserve both spouses’ NY exemptions. The first spouse’s exemption amount is placed in a trust, keeping it out of the surviving spouse’s estate but still accessible for their benefit.
✅ Strategic Lifetime Gifting
New York doesn’t tax gifts, but the 3-year clawback applies. Therefore:
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Make gifts at least 3 years before death to keep them excluded.
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Annual exclusion gifts: You can give up to $19,000 per recipient in 2025 tax-free.
✅ Charitable Giving
Incorporate “Santa Clause” language into your estate plan: a conditional bequest that automatically donates just enough to charity to reduce your estate under the cliff. This can save hundreds of thousands in tax while supporting a good cause.
✅ Disclaimer Trusts
This “wait-and-see” strategy allows the surviving spouse to disclaim part of an inheritance into a trust. That trust can preserve the deceased spouse’s exemption if the full amount isn’t needed, offering flexibility in uncertain times.
Why You Must Act Before 2026
TCJA Sunset Is Coming
The Tax Cuts and Jobs Act (TCJA) doubled the federal exemption, but it sunsets on December 31, 2025. Unless Congress acts, the exemption will revert to approximately $7 million per person in 2026.
The consequences of waiting:
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Gifting now locks in the higher federal exemption and growth is protected from estate taxes.
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In 2026, you lose up to $6.99 million per person in exemption if you wait.
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That could translate into up to $5.6 million in additional federal tax for a married couple.
Protecting What Matters Most to You
New York’s estate tax cliff isn’t just a technicality—it’s a trap that could cost your family hundreds of thousands in unnecessary taxes. The good news? You don’t have to face it alone.
Our trusted strategies:
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Establish credit shelter and disclaimer trusts
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Make timely lifetime gifts
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Incorporate charitable clauses
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Coordinate account titling and beneficiary forms
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Update outdated wills and documents
By planning now—before 2026—you give yourself the best chance to preserve your legacy.
Ready to take the next step?
Contact Alatsas Law Firm today to schedule your confidential consultation. We’ll review your estate and create a customized plan that keeps you out of the tax trap and protects your loved ones in the years to come.
FAQs
Q1. What is the New York estate tax exemption for 2025?
A: $7.16 million.
Q2. What happens if my estate is just over the limit?
A: If your estate exceeds 105% of the exemption ($7,518,000), the entire estate becomes taxable with no exemption benefit.
Q3. Can I avoid the estate tax cliff?
A: Yes. Credit shelter trusts, lifetime gifts, disclaimer trusts, and charitable bequests can all help reduce or eliminate tax exposure.
Q4. When should I start planning?
A: Now. The 2026 federal exemption rollback is approaching, and demand for planning will skyrocket as that deadline nears.
Q5. Is New York the only state with a cliff rule?
A: Yes. New York’s “cliff” makes it one of the most aggressive estate tax regimes in the country.
