If you live in New York, your estate may face a state-level tax that operates differently from the federal estate tax. The New York estate tax has a lower exemption threshold and a unique provision that can catch families off guard.
Understanding how the New York estate tax works — including the exemption, the “cliff,” and key planning strategies — can help you make informed decisions about your family’s legacy.
What is the New York estate tax?
The New York estate tax is a state-level tax on the transfer of property after death. For 2026, the New York basic exclusion amount is $7.35 million, meaning estates at or below this threshold generally owe no New York estate tax.1 This amount is indexed for inflation and adjusts each year, so the exclusion may increase over time.
By comparison, the federal estate tax exemption is $15 million per person in 2026, meaning many New York residents whose estates fall between the New York and federal thresholds could still face a state-level tax.2 If your estate is between $7.35 million and $15 million, you may owe New York estate tax although no federal estate tax applies.
How New York estate tax rates apply
New York uses a graduated rate schedule that tops out at 16%.3 The rates increase progressively based on the size of the taxable estate, so larger estates face higher marginal rates. An estate just above the exclusion amount faces a relatively modest rate, while a larger estate can face the full 16% on portions of its value.
Unlike the federal system, which taxes only the amount above the exemption, New York has a unique provision called the “estate tax cliff,” and it can dramatically increase what you owe. This cliff is the most important feature of New York estate tax to understand, because it can turn a small overshoot into a large tax bill.
The estate tax cliff: What it means for you
Here’s where New York stands apart from almost every other state. If your taxable estate exceeds 105% of the basic exclusion amount — $7,717,500 in 2026 — you lose the exclusion entirely. The entire estate, not just the excess, becomes subject to New York estate tax.4
Estates that exceed the exemption but stay below 105% of it receive a partial exclusion benefit, meaning New York taxes only the excess above the exemption. But cross that 105% line, and the full value of your estate is subject to tax from the first dollar. The difference between owing tax on a small excess and owing tax on your entire estate can come down to a meaningful amount in estate value.
This cliff can create a situation where an estate worth $7.72 million owes significantly more in taxes than an estate worth $7.71 million — a result that may strike some families as unfair. That’s why understanding where your estate stands relative to the threshold matters, and why regular monitoring of your estate’s value is so important.
No portability between spouses
Another key difference from federal law: New York doesn’t allow portability of a deceased spouse’s unused exemption. Under federal rules, a surviving spouse can inherit their deceased spouse’s unused estate tax exemption. New York offers no such benefit.5
For married couples, this means that if the first spouse to die doesn’t use their full New York exemption, that unused amount is lost permanently— potentially doubling their exposure. This is why credit shelter trusts are so important for married couples in New York.
The three-year gift add-back rule
New York doesn’t impose a separate gift tax, but it does have a gift add-back rule. New York adds back certain taxable gifts made within three years before into the taxable estate calculation.6 Late-in-life gifting strategies need careful timing to help achieve the intended tax savings. The add-back applies to the value of the gifted property when the gift was made, not when death occurs, which can further reduce the effectiveness of last-minute gifting.
Planning strategies to consider
Several strategies can help manage New York estate tax exposure. The right approach depends on your specific situation, your family structure, and your goals.
Credit shelter trusts
Also known as bypass trusts, credit shelter trusts allow married couples to preserve both spouses’ New York exemptions. When the first spouse dies, assets up to the exemption amount fund the trust, benefiting the surviving spouse without being included in their estate. This approach effectively replicates what portability would do if New York allowed it, ensuring neither spouse’s exemption is lost. Examples include the traditional credit shelter trust and the disclaimer credit shelter trust.
Lifetime gifting
Making gifts early enough to be outside the three-year add-back period can help reduce your estate’s value and remove future appreciation from the taxable estate. The key is timing — gifts made more than three years before death aren’t added back to the estate. This makes early, reliable gift giving during your lifetime more effective than last-minute transfers.
Charitable bequests
Directing a portion of your estate to charity can reduce the taxable estate and potentially eliminate cliff exposure. Some New York families use a formula charitable bequest — sometimes called a “Santa Clause” — that directs any amount exceeding the exclusion to charity, keeping the estate below the cliff threshold.
Regular monitoring
The exclusion amount adjusts for inflation, and asset values change. A plan that provides adequate margin today may not do so in a few years. Reviewing your estate value regularly helps you avoid accidentally crossing the cliff threshold as your assets grow or as the exclusion amount changes.
Bringing it all together
Managing New York estate tax exposure may be more effective when it’s part of a coordinated financial plan. Here are some ways different strategies can complement each other:
- Estate planning and tax planning: Credit shelter trusts and gifting strategies can reduce your taxable estate while coordinating with your overall tax picture.
- Investment management: Understanding how your portfolio may grow over time helps you estimate whether your estate could approach the cliff threshold, giving you time to plan.
- Insurance solutions: Life insurance in an irrevocable trust can provide liquidity for your heirs to cover any estate tax owed, without increasing your taxable estate.
Related Resources
- If you’re interested in learning more about how estate planning fits into your broader financial strategy, see our article on estate planning strategies for your financial future.
- For more on how investment management and financial planning complement each other, read about why financial planning is a prerequisite to successful investing.
- To learn more about how insurance fits into a comprehensive plan, see our article on integrated insurance planning.
New York’s estate tax rules create unique challenges, but they also create opportunities for families who plan ahead. The key is understanding where you stand, what strategies are available, and how to coordinate them with your broader financial goals.
FAQs
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The New York estate tax is a state-level tax on the transfer of property after death. For 2026, estates valued at or below $7.35 million generally owe no New York estate tax. Estates above that threshold may owe tax at graduated rates up to 16%. New York’s estate tax operates separately from the federal estate tax, which has a higher exemption of $15 million per person in 2026.
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The New York estate tax cliff kicks in when your taxable estate exceeds 105% of the basic exclusion amount — $7,717,500 in 2026. Below that threshold, only the excess above the exemption is taxed. Above it, you lose the exclusion entirely and the full estate is taxed from the first dollar. This can mean an estate worth $7.72 million owes significantly more tax than one worth $7.71 million.
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If you’re married and your combined assets approach the New York exclusion amount, a credit shelter trust can help preserve both spouses’ exemptions. Because New York doesn’t allow portability, this trust structure is one way to help ensure neither spouse’s exemption is lost. An estate planning professional can help you determine whether this approach fits your situation.
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Even if your estate is below the current New York exclusion amount, having an estate plan helps ensure your assets are distributed according to your wishes. An estate plan also positions you to manage future growth that could bring your estate above the threshold. An estate planning professional can help you build a plan that addresses both your current situation and future goals.
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The New York State Department of Taxation and Finance publishes the current basic exclusion amount on its website. The amount is indexed for inflation and adjusts annually. For 2026, the exclusion is $7.35 million. You can also consult a tax professional for guidance on how the current exemption applies to your specific situation.
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Calculating New York estate tax involves determining your taxable estate — which includes your federal gross estate plus certain includable gifts — and comparing it to the basic exclusion amount. New York provides a graduated rate schedule, and online calculators can help you assess your liability. For an accurate calculation, consult a qualified tax professional.
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The key differences are the exemption amounts and the cliff. New York’s 2026 exclusion is $7.35 million, while the federal exemption is $15 million per person. New York also has the estate tax cliff, which eliminates the exclusion entirely for estates above 105% of the threshold. Additionally, New York doesn’t allow portability between spouses, while federal law does.
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New York is one of about a dozen states that impose a separate estate tax. Its $7.35 million exclusion is higher than some states (like Oregon, which has a $1 million exemption) but lower than the federal amount. Almost no other state eliminates the exclusion entirely when an estate exceeds 105% of the threshold. This makes planning especially important for New York residents.
1“Estate Tax (New York State Department of Taxation and Finance).” New York State Department of Taxation and Finance, 2026.
2“Estate Tax (IRS).” IRS, Dec. 22, 2025.
3“Section 952 Tax Imposed.” The New York State Senate, Apr. 24, 2024.
4“Navigating the 2026 New York State Estate Tax: Planning With and for the New York and Federal Estate Tax Exemptions, the New York Cliff Tax, and Other Estate Planning Strategies.” The New York State Society of CPAs, April 1, 2026.
5“Navigating the 2026 New York State Estate Tax: Planning With and for the New York and Federal Estate Tax Exemptions, the New York Cliff Tax, and Other Estate Planning Strategies.” The New York State Society of CPAs, April 1, 2026.
6“Summary of Estate Tax Legislation Enacted in 2019.” New York State Department of Taxation and Finance, Nov. 20, 2019.
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy.
Mercer Advisors is not a law firm and does not provide legal advice to clients. All Estate planning document preparation and other legal advice are provided through select third parties, with which Mercer Advisors has a contractual relationship. Tax preparation and filing services are provided by Mercer Advisors Tax Services, LLC. Clients will sign a separate agreement when engaging Mercer Advisors Tax Services that defines the services provided and any additional fees that may apply. Insurance products are provided by Mercer Advisors Insurance Services, LLC (MAIS), which places individual life, disability, long term care coverage, and property and casualty coverage through select insurance companies. Trustee services are offered through select third parties with which a client would sign an additional agreement, and additional fees may apply.
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