If you live in New York and own a home, investments, or a business, the estate planning landscape is about to change. On January 1, 2026, the federal estate tax exemption is scheduled to drop by roughly half—a shift that could expose many New York families to estate tax for the first time. Combined with New York’s separate rules and steep tax “cliff,” even well-prepared families could find themselves facing unexpected liability.
This guide explains what’s changing, who’s most affected, and what you can do in 2025 to stay ahead. It’s written for New York families, professionals, and business owners who want to protect their legacy and avoid unnecessary tax risk. By the end, you’ll understand how to prepare—and why 2025 may be your last chance to act under today’s generous rules.
What’s Changing with Estate Taxes in 2026?
The most significant development is the federal estate tax sunset. Under current law, each individual can pass on about $13.6 million tax-free (double that for married couples). But unless Congress extends the higher limits, that exemption will drop to around $6–7 million per person on January 1, 2026.
That change alone would pull thousands of New York families into the taxable range—especially those who:
- Own appreciated real estate in New York City or vacation properties elsewhere
- Hold large retirement accounts or life insurance policies
- Run closely held businesses or professional practices
The New York State Estate Tax Trap
Even before 2026, New York’s rules have been complex and unforgiving. The state exemption currently sits near $7 million, but it isn’t portable between spouses—and once your estate exceeds roughly 105% of the exemption, you lose the benefit entirely. That “cliff” effect can trigger six-figure taxes on estates only slightly above the threshold.
Coordinating federal and state planning will be essential going forward. Families that only focus on federal law could easily miss the harsher state-level impact.
If you haven’t reviewed your plan recently, this is an ideal time to revisit whether your trusts, wills, and beneficiary designations are structured to minimize both state and federal exposure. (Related reading: Five Reasons Why Good Estate Planning Documents Fail)
Why 2025 Is a Window of Opportunity
The next year offers a unique—and possibly final—chance to use today’s higher federal exemption before it disappears. The IRS has confirmed that gifts made under the current limit will not be “clawed back” after 2026.
Here’s what that means in practical terms:
- You can give or transfer up to $13.6 million per person (or $27.2 million per couple) in 2025 without federal estate tax.
- Assets you gift now, including those placed in trusts, can grow outside your estate, shielding future appreciation from taxation.
- Common strategies include Spousal Lifetime Access Trusts (SLATs), Grantor Retained Annuity Trusts (GRATs), and Intentionally Defective Grantor Trusts (IDGTs).
If interest rates continue easing, intra-family loans and asset sales to trusts also become more efficient—allowing families to shift growth while keeping control.
For many clients, 2025 will be the year to act deliberately, not reactively.
Beyond Taxes: Modern Estate Planning Considerations
Estate planning in 2026 isn’t just about taxes. Several broader shifts are reshaping how families should approach long-term planning.
1. Digital and Cross-Border Estates
More New Yorkers now hold digital assets, such as cryptocurrency, creator income streams, or online businesses. Plans must explicitly authorize digital access under New York’s RUFADAA law and include a secure inventory of accounts, passwords, and storage locations.
For clients with foreign property, dual citizenship, or international beneficiaries, cross-border coordination is critical to avoid double taxation or probate delays.
2. Medicaid and Long-Term Care Planning
The five-year look-back for nursing home care remains in place, and New York continues to phase in a 30-month look-back for Community Medicaid. For families concerned about long-term care costs, a Medicaid Asset Protection Trust (MAPT) or pooled income trust can safeguard assets while preserving eligibility.
Many clients combine these tools with tax-efficient trusts to balance elder care readiness and wealth preservation. (For more context, see How Medicaid Changes Impact Long-Term Care Planning in New York).
3. Compliance and Recordkeeping
With new Beneficial Ownership Information (BOI) reporting rules in effect, families using LLCs or family limited partnerships (FLPs) must ensure their records are accurate and up to date. Clean entity documents make transfers smoother and prevent penalties.
Additionally, financial institutions are becoming stricter about Power of Attorney (POA) forms. Outdated or narrow POAs are increasingly rejected, forcing families into guardianship proceedings when incapacity strikes. Updating your POA, Health Care Proxy, and HIPAA release under New York’s 2021 statutory form is essential.
4. Charitable Planning and Legacy Giving
As more families seek both tax relief and purpose, tools like Donor-Advised Funds (DAFs), Charitable Remainder Trusts (CRTs), and Charitable Lead Trusts (CLTs) are gaining traction. These vehicles allow donors to combine philanthropy with income or estate tax benefits—an appealing option in a high-tax state like New York.
Common Misconceptions About Estate Planning in 2026
“We’re under $10 million, so we’re safe.”
Between the federal sunset and New York’s cliff, many households worth $7–9 million could suddenly face taxable estates.
“Trusts are only for the wealthy.”
Trusts offer privacy, control, and probate avoidance for families of all sizes—not just those focused on taxes.
“We’ll plan once the laws are final.”
Waiting for political certainty often costs more. Building flexible structures now allows your plan to adapt if Congress acts later.
“My spouse can handle everything if I’m incapacitated.”
Not without valid, updated documents. A missing or outdated POA can leave your family unable to access accounts or make urgent decisions.
The Bottom Line
The New York estate tax changes of 2026 will reshape planning for many families who have never faced estate taxes before. Acting in 2025 gives you the advantage of higher exemptions, lower rates, and greater flexibility.
Now is the time to:
- Review your estate and gift tax exposure under both 2025 and 2026 assumptions
- Equalize assets between spouses to use both exemptions
- Refresh outdated POAs, trusts, and titles
- Prepare for digital and cross-border complexity
- Explore charitable or Medicaid strategies that fit your goals
FAQs
1. What is the New York estate tax exemption in 2026?
It’s projected to remain around $7 million, but there’s no portability between spouses. The federal exemption will drop by roughly half, creating overlapping exposure for many estates.
2. Will the federal sunset definitely happen?
Unless Congress acts, yes. The higher exemption expires December 31, 2025. The IRS has confirmed no penalty for using the larger exemption before it reverts.
3. Do I need to update my estate plan even if I’m under the threshold?
Yes. Even smaller estates need updated POAs, health care directives, and trust funding to avoid court intervention and ensure privacy.
Next Step
If you live in New York and want to protect your family from the coming 2026 estate tax changes, now is the time to plan. Schedule a confidential consultation with The Village Law Firm to model your options and secure your legacy under both current and future law.
