When New York revamped its estate-tax law in 2014 it kept one very sharp feature: the “cliff.” In 2025 the basic exclusion is $7.16 million per person—yet if your taxable estate creeps just 5 % above that mark (about $7.52 M), the entire estate—not merely the excess—is taxed at up to 16 %.
Below we unpack the math behind the cliff, show examples, and outline practical strategies high-net-worth New Yorkers can implement before it’s too late.
1. How the New York Estate Tax Cliff Works
| 2025 Basic Exclusion | “Cliff” Trigger | Top NY Rate | Portability | Gift Add-Back |
| $7.16 M | 105 % of exclusion (≈ $7.52 M) | 16 % | None | 3-year claw-back of taxable gifts (§ 952(c)) |
Formula. New York taxes the estate, then grants a credit that phases out between 100 % and 105 % of the exclusion. The credit hits zero at 105 %, leaving the full tentative tax payable.
Gift claw-back. Taxable gifts made within three years of death (other than annual-exclusion and charitable gifts) are pulled back into the NY taxable estate—potentially pushing families over the cliff.
Example — “Just $400k Over” Becomes a Big Bill
| Estate Value | NY Tax Due* | Effective Rate |
| $7.50 M (≤ cliff) | $ 0 | 0 % |
| $7.60 M (> cliff) | ≈ $650k | 8.5 % |
*Using 2025 rates and standard deductions.
2. Who Is at Risk of Facing The New York Estate Tax Cliff ?
- Owners of down-state real estate appreciating past $7 M
- Small-business and professional‐practice owners with retained earnings
- Survivors relying on the federal $15 M exemption (2026+) but overlooking New York’s much lower threshold
3. Six Tactics to Avoid (or Soften) the New York Estate Tax Cliff
| # | Strategy | Why It Helps | Caution Flags |
| 1 | Credit-Shelter (Bypass) Trust | Captures each spouse’s NY exclusion; keeps growth out of survivor’s estate | Irrevocable at first death; must be drafted before or within nine months after death (via disclaimer) |
| 2 | Lifetime Gifts > 3 Years Before Death | Removes assets from NY estate without claw-back | Longevity risk; federal gift-tax filing |
| 3 | Spousal Lifetime Access Trusts (SLATs) | Uses NY exclusion during life while preserving indirect access | Divorce or premature death of beneficiary-spouse |
| 4 | Valuation Discounts & FLP/LLC Freezes | Pushes appraised value below $7.16 M; freezes future growth | Requires qualified appraisals; watch § 2704 regs |
| 5 | Charitable Lead Trust or Outright Bequest | Carves value out of taxable estate; can replace wealth with ILIT | Irrevocable; monitor payout assumptions |
| 6 | QTIP “Santa-Claus” Election | Defers NY tax until surviving spouse’s death; may avoid cliff twice | NY Form ET-706 filing within nine months |
4. Action Checklist for 2025–26 to avoid the New York Estate Tax Cliff
- Inventory asset values—update valuations of real estate and closely held entities.
- Review prior Form 709 gifts to track remaining federal exemption and NY claw-back exposure.
- Re-draft formula clauses so credit-shelter trusts reference the NY exclusion rather than “maximum amount free of federal estate tax.”
- Model the cliff annually—a 4 % market gain can push a $7 M estate over the edge.
- File NY Form ET-706 even if no federal Form 706 is required, to start the statute of limitations and (if elected) secure QTIP treatment.
Ready to Build Your Credit-Shelter Strategy?
A cliff this steep demands precise planning—and the right trust infrastructure. RK Law PC designs credit-shelter and SLAT structures that capture both spouses’ exclusions while keeping assets accessible and tax-efficient.
Avoid the New York Estate Tax Cliff today so your heirs don’t fall off it tomorrow.
For more information, please contact NYC Probate Litigation, Guardianship, Probate, and Estate Planning attorney Regina Kiperman:
Phone: 917-261-4514
Fax: 929-556-2089
Email: rkiperman@rklawny.com
Or visit her at:
40 Wall Street
Suite 2508
New York, NY 10005
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