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STRATEGIES TO STAY UNDER THE NEW YORK CLIFF TAX
CLIENT QUESTION:
I take care of my godfather, who is in assisted living. I handle his finances, and I am the executor of his Will. His estate has just reached the New York estate tax threshold. Besides gifting and charitable donations, what can we do to keep his estate below the threshold? Can he make withdrawals or purchases?
MY RESPONSE:
New York has an estate tax “cliff.” For 2026, the exclusion is $7.35 million. Once an estate exceeds the exclusion by more than 5%, the exclusion is completely lost, and the tax can become significant.
So, keeping the estate below the cliff can make a big difference.
Gifting is the most obvious strategy. There are also several more sophisticated gifting techniques using trusts that can be very effective. However, for New York estate tax purposes, gifts made within three years of death generally get added back into the estate. So, the earlier the planning is done, the better.
Your godfather can also spend his money. Assisted living expenses, additional care, travel, a new car, entertainment, and other legitimate personal expenses can reduce his estate.
Simply withdrawing money does not work. Taking $100,000 out of the bank and keeping the cash still leaves him owning $100,000. Similarly, buying a $100,000 asset usually just exchanges one asset for another.
Charitable giving can also reduce the taxable estate and may provide income tax benefits.
Most importantly, being the executor or a co-signer does not necessarily give you authority to make gifts or engage in estate tax planning during his lifetime. We would need to know whether you have a Power of Attorney and exactly what authority it provides.
When someone is close to the New York estate tax cliff, careful planning can potentially save a substantial amount of tax. |
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