Attention New York residents! The state’s estate tax exemption is due to undergo a dramatic change in 2025. Currently, the exemption stands at $6 million, one of the highest in the nation. However, a new law enacted in the 2019-2020 state budget will reduce the exemption to $3.5 million in just a few years, potentially impacting a large number of New Yorkers.
The estate tax is a tax levied on the value of an individual’s property at the time of their death. If the value of the estate exceeds the exemption amount, the remaining value is subject to taxation. The reduction in the exemption will mean that more estates will be subject to the tax, and the amount of tax owed will increase significantly. For example, an estate with a value of $4 million would currently owe no estate tax, but under the new law, it would be subject to a tax of $65,000.
This change is likely to have a significant impact on estate planning for New Yorkers. Individuals who have not yet planned for the estate tax may need to take steps to reduce the value of their estates below the exemption amount. This could involve making gifts to family members or charitable organizations, or establishing trusts. It is important to consult with an estate planning attorney to discuss your options and develop a plan that meets your specific needs.
New York State Estate Tax Threshold Increases in 2025
Beginning in 2025, the New York State estate tax threshold will increase significantly, providing significant potential tax savings for many estates. The estate tax threshold is the value of an estate below which no estate tax is due. Any taxable estate above this threshold is subject to the state’s estate tax rates, which range from 5% to 16%.
The table below outlines the increase in the New York State estate tax threshold from 2023 to 2025:
| Year | Estate Tax Threshold |
|---|---|
| 2023 | $6,257,000 |
| 2024 | $6,474,000 |
| 2025 | $7,180,000 |
Exemptions and Portability for New York Estate Tax
Exemptions
The New York estate tax exemption is the amount of an individual’s estate that is not subject to taxation. For 2025, the exemption amount is $6.31 million for New York State residents and $5.91 million for non-residents. This means that if an individual’s estate is worth less than $6.31 million (or $5.91 million for non-residents), no estate tax will be due.
Portability
Portability is a federal estate tax provision that allows married couples to transfer their unused estate tax exemption to their surviving spouse. This means that if one spouse dies with an unused exemption, the surviving spouse can use it to reduce their own estate tax liability. Portability is available for both the federal estate tax and the New York estate tax.
To utilize portability, the executor of the deceased spouse’s estate must file a federal estate tax return (Form 706) and include a statement that the deceased spouse’s unused exemption is being transferred to the surviving spouse. The surviving spouse can then use the unused exemption on their own estate tax return (Form 706).
Here is a table summarizing the key information about portability for New York estate tax:
| New York State Residents | Non-Residents | |
|---|---|---|
| Estate Tax Exemption | $6.31 million | $5.91 million |
| Portability Available | Yes | Yes |
Changes in Generation-Skipping Transfer Tax for New Yorkers
The New York State Department of Taxation and Finance (NYSDTF) has announced significant changes to the generation-skipping transfer (GST) tax exemption beginning in 2025. These changes aim to align state GST exemption limits with federal law and provide clarity to estate planners.
GST Exemption Increases
Effective January 1, 2025, the GST exemption will increase to $12.92 million for New York State residents. This amount matches the federal GST exemption, which is also set to increase in 2025. This increase will provide significant tax savings for individuals making gifts or bequests that skip generations.
GST Exemption Allocation
New Yorkers will have the option to allocate their GST exemption among multiple beneficiaries or trusts. This flexibility allows for more tailored estate planning and can help minimize GST tax liability.
Allocation Options
The NYSDTF has outlined the following allocation options:
Direct Allocation
Exemption is transferred directly to a beneficiary or trust.
Pro Rata Allocation
Exemption is divided equally among beneficiaries or trusts.
Specific Allocation
Exemption is allocated to specific beneficiaries or trusts in specified amounts.
The table below summarizes the GST exemption allocation options available to New Yorkers:
| Allocation Method | Description |
|---|---|
| Direct | Exemption is transferred directly to a beneficiary or trust. |
| Pro Rata | Exemption is divided equally among beneficiaries or trusts. |
| Specific | Exemption is allocated to specific beneficiaries or trusts in specified amounts. |
Impact of Federal Tax Reforms on Estate Planning
The Tax Cuts and Jobs Act of 2017 made significant changes to the federal estate tax, including doubling the exemption amount and eliminating the generation-skipping transfer tax (GST) exemption. These changes have a major impact on estate planning, as they reduce the number of estates that are subject to tax and increase the amount of wealth that can be passed on to heirs tax-free.
Increased Estate Tax Exemption
The federal estate tax exemption was doubled to $11.7 million in 2023 and is scheduled to increase to $12.92 million in 2025. This means that individuals can pass on up to this amount of wealth to their heirs without paying any federal estate tax.
Elimination of Generation-Skipping Transfer Tax Exemption
The GST exemption was eliminated as of January 1, 2018. This means that any transfers of wealth to individuals who are more than one generation removed from the transferor (e.g., grandchildren or great-grandchildren) are subject to the generation-skipping transfer tax (GST). The GST rate is equal to the highest estate tax rate, which is currently 40%. There are limited exceptions to the GST, such as for direct transfers to grandchildren or for transfers to trusts that meet certain requirements.
The Effect of the Increased Exemption on Estate Planning
The doubling of the federal estate tax exemption has a significant impact on estate planning. As a result of this increase, a large number of estates will no longer be subject to federal estate tax. This will reduce the need for estate planning techniques that are designed to reduce estate taxes, such as trusts and gifting.
The Effect of the Elimination of the GST Exemption on Estate Planning
The elimination of the GST exemption complicates estate planning for individuals who want to pass on wealth to their descendants. As a result of this change, individuals need to carefully consider how to minimize the impact of the GST on their estates.
| Year | Estate Tax Exemption | GST Exemption |
|---|---|---|
| 2017 | $5.49 million | $5.49 million |
| 2023 | $11.7 million | N/A |
| 2025 | $12.92 million | N/A |
Tax Strategies to Reduce Estate Tax Liability in 2025
1. Utilize a Revocable Living Trust
A revocable living trust allows you to transfer assets to a trustee during your lifetime, which can remove them from your estate and reduce your taxable value.
2. Make Charitable Contributions
Charitable gifts up to a certain percentage of your income or estate value are not subject to estate tax. Consider donating to qualified charities to reduce your tax burden.
3. Gift Assets
You can make gifts of up to $17,000 per year to as many individuals as you wish without incurring gift tax. By transferring assets gradually over time, you can reduce the size of your estate.
4. Insurance Policies
Life insurance proceeds are typically exempt from estate tax. Consider purchasing life insurance policies to create a pool of funds that can help pay estate taxes.
5. Advanced Estate Planning Techniques
More sophisticated estate planning strategies include:
| Technique | Description |
|---|---|
| Grantor Retained Annuity Trust (GRAT) | Transfers assets into a trust that makes annual payments to you for a set period. After the term, the remaining assets pass to beneficiaries tax-free. |
| Qualified Personal Residence Trust (QPRT) | Transfers your primary residence into a trust while you retain the right to live in it. The trust value is removed from your estate over time, reducing estate taxes. |
| Intentionally Defective Grantor Trust (IDGT) | Transfers assets into a trust that allows the grantor to pay income taxes. This can reduce the value of your estate and save estate taxes. |
These advanced techniques require careful planning and should be implemented with the guidance of a qualified estate attorney.
The Role of Trusts in Estate Tax Planning
Trusts are essential tools in estate tax planning, allowing individuals to minimize their taxable estate and transfer assets to beneficiaries in a tax-efficient manner. Trusts can be used to protect assets from creditors, ensure their distribution according to the grantor’s wishes, and avoid probate proceedings.
Types of Trusts
There are numerous types of trusts, each serving a specific purpose in estate planning. Some common types include:
- Revocable living trusts: Allow the grantor to retain control over the assets and make changes to the trust during their lifetime.
- Irrevocable trusts: Once established, the grantor cannot make changes to the trust. They are often used to protect assets from creditors and ensure their distribution according to the grantor’s wishes.
- Charitable trusts: Allow the grantor to donate assets to a charity and receive a tax deduction. These trusts can also be used to protect assets from creditors.
Benefits of Using Trusts
Trusts offer numerous benefits in estate tax planning, including:
- Reducing taxable estate: Assets placed in a trust are removed from the grantor’s taxable estate, potentially reducing the amount of estate tax owed.
- Avoiding probate: By transferring assets to a trust, individuals can avoid the often lengthy and costly probate process.
- Protecting assets: Trusts can protect assets from creditors and lawsuits, ensuring their distribution according to the grantor’s wishes.
- Preserving privacy: Assets placed in a trust are not part of the public record, providing privacy to the beneficiaries.
Considerations When Establishing a Trust
When establishing a trust, individuals should consider the following factors:
- Purpose of the trust: Determine the specific reasons for creating the trust, such as reducing taxes, protecting assets, or providing for beneficiaries.
- Type of trust: Choose the type of trust that best suits the purpose and goals of the grantor.
- Trustee selection: Appoint a trustee who is trustworthy, responsible, and capable of managing the trust assets.
- Trust terms: Clearly define the terms of the trust, including the distribution of assets and the powers of the trustee.
- Tax implications: Consider the potential tax consequences of establishing and maintaining a trust.
Example
Consider the following example:
| Without a Trust | With a Trust |
|---|---|
| Taxable estate: $1,000,000 | Taxable estate: $500,000 |
| Estate tax owed: $200,000 | Estate tax owed: $50,000 |
In this example, by transferring $500,000 to a trust, the individual reduced their taxable estate by the same amount. This resulted in a significant reduction in estate tax owed, from $200,000 to $50,000.
Advance Planning for the Increased Exemption Threshold
The New York estate tax exemption is set to increase in 2025, providing a significant opportunity for high-net-worth individuals to reduce their potential tax liability. Here are some strategies to consider:
1. Maximize Lifetime Gifts
Make gifts to loved ones within the annual exclusion amount ($17,000 in 2023) to reduce the value of your taxable estate.
2. Use the Generation-Skipping Transfer (GST) Tax Exemption
Transfer assets to grandchildren and other non-direct descendants to take advantage of a separate GST tax exemption.
3. Fund Irrevocable Trusts
Establish irrevocable trusts, such as grantor-retained annuity trusts (GRATs) and qualified personal residence trusts (QPRTs), to remove assets from your estate while maintaining certain benefits.
4. Utilize Charitable Donations
Make charitable donations to reduce your taxable estate and potentially receive a tax deduction.
5. Consider Life Insurance
Purchase life insurance policies with death benefits that exceed the estate tax exemption to cover potential tax liabilities.
6. Rebalance Your Portfolio
Review your investment portfolio and sell assets that are expected to appreciate significantly to avoid having to liquidate them after your death at a potentially higher capital gains tax rate.
7. Charitable Lead Trusts (CLTs) and Charitable Remainder Trusts (CRTs)
These trusts allow you to transfer assets to a charitable organization while receiving income or other benefits from the trust. After a specified period, the remaining assets are transferred to the charity. This strategy reduces your taxable estate and potentially generates a tax deduction.
| Trust Type | Income Recipient | Distribution |
|---|---|---|
| Charitable Lead Trust (CLT) | Charity | Fixed amount or percentage |
| Charitable Remainder Trust (CRT) | Beneficiary | Income for life or a specified period |
| Charitable Remainder Unitrust (CRUT) | Beneficiary | Fixed percentage of trust value |
| Charitable Remainder Annuity Trust (CRAT) | Beneficiary | Fixed dollar amount |
Estate Tax Implications for Non-Resident Owners
Non-resident owners of real estate in New York are subject to the state’s estate tax if the value of their estate exceeds the applicable exemption amount. The exemption amount for non-resident owners is significantly lower than that for resident owners, and it is important to be aware of the tax implications before making any estate planning decisions.
Exemption Amount
The New York estate tax exemption for non-resident owners is the lesser of:
- 25 percent of the federal estate tax exemption amount
- $1 million
For 2025, the federal estate tax exemption amount is $12.92 million. Therefore, the New York estate tax exemption for non-resident owners is $3.23 million (25 percent of $12.92 million).
Tax Rates
The New York estate tax rates for non-resident owners are as follows:
Marginal Tax Rate Taxable Income Bracket1
8.5% $3,230,001 – $13,499,999
10% $13,500,000 – $26,999,999
11% $27,000,000 – $53,999,999
12% $54,000,000 – $107,999,999
13% $108,000,000 – $161,999,999
14% $162,000,000 – $215,999,999
15% $216,000,000 – $429,999,999
16% $430,000,000 and above
1Taxable income is the value of the estate minus the applicable exemption amount.
Non-Resident Owner Considerations
Non-resident owners of real estate in New York should be aware of the following considerations:
- Only the value of the real estate located in New York is included in the New York estate tax.
- Non-resident owners are not eligible for the New York estate tax marital deduction.
- Non-resident owners may be able to claim a credit for estate taxes paid to other states.
- It is important to consult with an estate planning attorney to discuss the specific tax implications of owning real estate in New York as a non-resident.
Aligning Assets and Beneficiaries to Maximize Exemptions
To fully utilize the increased estate tax exemption, individuals should consider aligning their assets and beneficiaries strategically. The following strategies can help maximize the value of the exemption:
1. Gift Assets Early
Making gifts of appreciated assets during one’s lifetime reduces the value of the estate subject to tax upon death.
2. Utilize the Lifetime GST Exemption
Creating a generation-skipping trust (GST) can effectively transfer assets to grandchildren or future generations without incurring GST.
3. Consider Irrevocable Trusts
Establishing irrevocable trusts, such as irrevocable life insurance trusts (ILITs), can remove assets from the grantor’s estate, shielding them from estate tax.
4. Use Spousal Property Splitting
Married couples can transfer assets between spouses without triggering gift tax, potentially doubling their combined exemption.
5. Leverage Charitable Gifts
Donating assets to qualified charities reduces the taxable value of the estate by the amount of the donation.
6. Utilize Portability
Surviving spouses can claim the unused portion of the first spouse’s estate tax exemption, effectively doubling their own exemption.
7. Plan for Generation-Skipping Transfer Tax (GST)
Understanding the GST rules is crucial to avoid unexpected tax liability when transferring assets to younger generations.
8. Consider Qualified Personal Residence Trust (QPRT)
A QPRT allows individuals to transfer their primary residence to a trust while retaining the right to live in it. Upon the grantor’s death, the value of the home is removed from the estate.
9. Fractional Interest Transfers
Transferring fractional interests in an asset, such as a vacation home, to multiple beneficiaries allows each recipient to claim a portion of the exemption, potentially avoiding estate tax on the entire property. Fractionating assets may also provide diversification benefits and facilitate easier transfers among family members in the future.
Fraction of Interest Transferred Exemption Amount 50% $6.22 million 25% $3.11 million 12.5% $1.555 million Estate Tax Considerations for Business and Investment Holdings
1. Estate Tax Threshold
In 2025, the federal estate tax exemption is set to increase to $12.92 million per individual ($25.84 million for married couples). This means that estates valued below this threshold will not be subject to federal estate tax.
2. Business Ownership
If you own a business, it’s important to consider how the estate tax will affect its value. If your estate is valued above the exemption amount, your business may be subject to estate tax. There are several strategies to minimize the estate tax impact on your business, such as gifting shares to family members or creating a trust.
3. Investment Ownership
Investments such as stocks, bonds, and real estate can also be subject to estate tax. If your investment portfolio is valued above the exemption amount, you may want to consider diversifying your investments or gifting them to family members to reduce their value for estate tax purposes.
4. Business Deductions
There are a number of deductions available to reduce the value of your estate for estate tax purposes. These deductions include business debts, funeral expenses, and charitable contributions.
5. Gift Tax Exclusions
You can make gifts to family members or other individuals without incurring gift tax up to a certain amount each year. The annual gift tax exclusion for 2025 is $16,000 per recipient.
6. Estate Planning Techniques
There are several estate planning techniques that can help you minimize the estate tax on your estate. These techniques include creating a will, establishing a trust, and making charitable gifts. It is important to consult with an estate planning attorney to develop a plan that meets your specific needs.
7. Generation-Skipping Transfer Tax (GST)
The GST is a tax on transfers of property to individuals who are two or more generations below the donor. The GST exemption amount for 2025 is $12.92 million per individual. If you make a transfer that is subject to the GST, you may be able to use your estate tax exemption to offset the GST liability.
8. State Estate Tax
In addition to the federal estate tax, some states also impose their own estate tax. The state estate tax exemption varies from state to state. It is important to be aware of the estate tax laws in the states where you own property or reside.
9. Valuation Discounts
There are a number of valuation discounts that can be used to reduce the value of your estate for estate tax purposes. These discounts include minority interest discounts and lack of marketability discounts.
10. Estate Tax Payment Options
If your estate is subject to estate tax, there are several options for paying the tax. These options include paying the tax in cash, using a loan, or selling assets.
New York Estate Tax Exemption 2025
The New York estate tax is a tax on the value of a person’s property at their death. The exemption amount is the amount of a person’s property that is exempt from the tax. The exemption amount for the New York estate tax is currently $5.93 million. This means that if a person’s property is worth less than $5.93 million, no estate tax will be due.
The New York estate tax exemption is scheduled to increase to $6.14 million in 2025. This means that more people will be exempt from the estate tax in the future.
The New York estate tax is a complex tax. It is important to speak with an estate planning attorney to make sure that your estate plan is in compliance with the law.
People Also Ask About New York Estate Tax Exemption 2025
What is the New York estate tax exemption for 2025?
The New York estate tax exemption for 2025 is $6.14 million.
Who is subject to the New York estate tax?
Any person who dies with property located in New York State is subject to the estate tax. This includes both residents and non-residents.
What is the tax rate for the New York estate tax?
The tax rate for the New York estate tax is graduated. The rate ranges from 5% to 16%. The rate that applies to an estate depends on the value of the estate.
How can I reduce my New York estate tax liability?
There are a number of ways to reduce your New York estate tax liability. Some of the most common methods include:
- Making gifts during your lifetime
- Creating a revocable trust
- Purchasing life insurance
