New York Estate Tax and How the “Cliff” Works
Learn about New York’s estate tax, why it exists, and how to manage the “cliff” effect for better estate planning.
Many states dropped their estate tax years ago, but not New York. Anyone who lives in the state or owns property there needs to know the what and why of it. (Although the state does not have an inheritance tax.)
As of 2025, New York continues to levy its own estate tax with an exclusion (exemption) indexed annually for inflation. Here are the basics:
Exclusion amount: $7.16 million per person (inflation-adjusted annually). If your taxable estate is below that number, there’s no New York estate tax.
Rates: Graduated rates from 3.06% up to 16%.
No portability: Unlike the federal system, New York does not let a surviving spouse “port” any unused exclusion. Many couples use credit-shelter or similar trusts to preserve both spouses’ exclusions.
Gift add-back: New York has no gift tax, but taxable gifts made within three years of death are generally pulled back into the estate (with certain timing carve-outs). This can push an estate over the line—see “the cliff” below.
The infamous “cliff” (and why it bites): New York’s twist is the estate tax “cliff.” If your taxable estate exceeds the exclusion by even a little, the benefit phases out quickly—and once you’re over 105% of the exclusion, the entire estate becomes taxable (not just the dollars above the line). Practically, a modest “extra” can trigger a disproportionately large tax bill. For 2025, 105% of $7.16 million is $7.518 million; cross that threshold and you’ve fallen off the cliff.
Why New York Estate Tax Is Still a Thing
Back in the day, most states relied on a federal “pick-up” credit that let them share in the federal estate tax—no extra tax to the family. When Congress phased that credit out in 2005, many states’ estate taxes disappeared automatically. New York chose a different path. It reworked its law and kept a stand-alone estate tax, later overhauling the rules again in 2014 to raise the exclusion and update mechanics.
In other words, New York kept the revenue stream (and the policy) even as other states bowed out. New York’s estate tax persists because the state chose to keep it when the federal credit vanished—and it’s designed with features (like the 105% cliff) that can produce big taxes from small overages.
Imagine an estate that’s barely over the limit due to market growth or a late-in-life gift add-back. Without planning (e.g., bequests to charity or formula clauses), heirs could face six-figure New York tax. (Even though the estate is only slightly bigger than the exclusion.)
What It All Means for New Yorkers
Estate size matters—down to the dollar. If your projected estate is near the exclusion, precision planning can keep you below the cliff or soften its impact. For example, incorporating a charitable “savings clause” to trim value if you’re close.
Plan for spouses differently than federal. Because there’s no portability, many couples rely on credit-shelter/bypass trusts or a New York QTIP approach to preserve each spouse’s exclusion.
Mind the three-year gift look-back. Large lifetime gifts can be smart, but gifts within three years of death may be added back (with exceptions and a scheduled change after 2025 unless the law is extended).
Own property in New York? Even nonresidents can face taxes on New York-situs assets (like real property). Cross-border families should review titling, situs, and trust structures and know both New York and federal rules. (General guidance; specifics depend on your facts.)
(Further Reading: Revocable trusts in New York versus Nevada.)