As the current estate tax exemptions are set to be reduced in 2026, many New Yorkers are realizing that the time to start (or update) their estate planning is now. With the possible expiration of the Tax Cuts and Jobs Act (TCJA), estate tax exemptions will revert to much lower limits, likely affecting more estates in the New York area. This shift means that some people who might not have expected to pay estate taxes could now see significant taxes on what they leave behind.
To avoid unexpected tax consequences for your family, planning with a professional estate attorney now can make a difference. Let’s look at what’s changing, who it impacts, and how different strategies can help keep your assets with your heirs.
What Is Changing with the Estate Tax Exemption?
When the TCJA passed in 2017, the federal estate tax exemption jumped from around $5 million to over $12 million, indexed to inflation. In 2024, the exemption is roughly $13.61 million per person, allowing a married couple to transfer over $27 million free of federal estate tax.
On January 1, 2026, the exemption will drop back to $5 million, adjusted for inflation, which will likely fall between $6.5 million and $7 million. This shift could mean a tax of up to 40% on estates exceeding this reduced exemption amount.
How Does This Affect New Yorkers?
New York also imposes its own estate tax on estates over $6.58 million in 2024, so if you’re a New York resident, your estate may already be subject to state taxes if it surpasses this threshold. Combined with the potential federal tax, New York families may see a larger portion of their assets going to taxes if they don’t plan ahead.
Key Estate Planning Strategies to Consider Now
Lifetime Gifting to Use the Current Exemption
Using the current federal exemption through lifetime gifting is a powerful way to transfer wealth tax-free. Gifting while the exemption is high allows you to take full advantage of today’s rates, shielding assets from both federal and state estate taxes.
Trusts can be an effective way to take advantage of the heightened exemption while retaining control over your assets. Here are a few types that may fit well with the goals of protecting and transferring assets to loved ones:
- Irrevocable Life Insurance Trust (ILIT): By moving a life insurance policy into an ILIT, you remove its proceeds from your taxable estate, potentially providing tax-free funds to your beneficiaries.
- Qualified Terminable Interest Property (QTIP) Trust: A QTIP trust can be useful for couples, allowing the surviving spouse to receive income from the trust while preserving assets for other beneficiaries.
- Grantor Retained Annuity Trust (GRAT): A GRAT can be an effective way to transfer appreciating assets out of your estate. After the trust term ends, the remaining assets pass on to beneficiaries with little to no gift tax liability.
Consider Charitable Giving to Reduce Estate Tax Exposure
Gifting to a 501(c)(3) charity can offer significant tax benefits, especially when structured in coordination with your overall estate plan. You may choose to make charitable donations either during your lifetime or after you pass, and either option can potentially lower your taxable estate. Read about more strategies in our article, 2022 Year-End Tax Planning Tips
Planning for Business Ownership Transfers
For those who own a family business, planning for succession is crucial. Family Limited Partnerships (FLPs) and similar structures can allow you to transfer ownership interests at a reduced value, protecting the business from estate tax liability and helping to secure the business for future generations.
Timing Is Critical—Why Start Now?
Preparing for estate tax changes requires careful planning, and each estate is unique. While some estate planning strategies can be implemented relatively quickly, others—such as setting up trusts or a business succession plan—can take time and effort to finalize. Additionally, estate planning attorneys are expected to see high demand as the 2026 deadline approaches, which could mean longer wait times.
By starting New York City tax planning now, you’ll have more options available and can take full advantage of the current, higher exemption before it changes. Working with an estate planning attorney experienced in both New York and federal tax law ensures that your plan is not only tailored to your wishes but also maximizes your tax savings.
Schedule an Estate Planning Consultation Today
The impending reduction in the estate tax exemption makes it essential to review and update your estate plan if you haven’t already. By getting ahead of the changes, you can help secure your family’s future, ensuring that more of your assets go to your loved ones, not taxes.
Ready to discuss your estate plan? Book an Initial Call with our team in New York City.
