Every testator putting together an estate plan has different needs and priorities. The extent of an individual’s holdings, the various relationships they have developed and their personal values all influence what they want to happen with their assets after they die.
Most testators have family members, friends or charitable causes that they intend to name as their primary beneficiaries. People typically do not want a lifetime of hard work and sacrifice to pad the pockets of the state or federal government. After all, they have already paid taxes on their income and holdings.
However, estate taxes can drastically alter the legacy an individual leaves when they die. Both New York and the federal government impose estate taxes for those who leave millions of dollars in property at the time of their passing. Learning the basics about estate taxes can help testators as they begin creating an estate plan or work to strengthen an existing plan to more effectively minimize estate tax exposure.
What property is at risk of taxation?
Estate taxes technically apply to the totality of an individual’s estate. The estate itself consists of all resources that belong directly to the decedent at the time of their death. The personal representative or executor administering the estate must identify and catalog all of the estate’s resources.
Holdings ranging from investments and financial accounts to real property and businesses can become the property of the estate. If the total value of those resources is above the exemption threshold that applies, given the jurisdiction and the timing of the individual’s passing, then estate taxes may be due. People who live and die in New York are theoretically subject to both federal and state estate taxes.
Who pays the New York State estate tax?
New York is among a small minority of states that still collect a state-level estate tax. For deaths that occur in 2025, the maximum value of an exempt estate is $7.16 million. That figure increases to $7.35 million in 2026.
The law in New York has a very strict rule that allows the state to tax the entirety of the estate once it reaches 105% of the exemption threshold. The New York state estate tax is progressive. Estates that are only slightly over the exemption threshold could be subject to a tax rate as low as 3.06%. However, the maximum tax rate is 16%.
Who pays the federal estate tax?
Federal estate taxes apply to estates all throughout the country, regardless of where the testator lives and where their estate passes through probate court. Thankfully, the threshold for taxation is much higher at the federal level.
For individuals who pass in 2025, the federal estate tax threshold is $13.99 million. For those who pass in 2026, the threshold increases to $15 million. As is the case with the New York estate tax, the federal estate tax is progressive. Non-exempt estates may face a tax rate of between 18% and 40%, depending on their overall size.
What are common estate tax reduction strategies?
Testators often try to strategize to completely avoid estate taxes. However, when doing so is not possible, their goal may instead be to minimize the tax rate that applies by making strategic moves with their assets.
There are multiple ways for individuals to diminish the taxable value of their estates before they pass. Some people make regular gifts to friends, family and charitable causes. People may transfer assets to a trust to prevent them from passing through probate and becoming part of their estates. Some people also make arrangements to share ownership of their resources while they are alive. They add co-owners to real property, business holdings and financial accounts.
They can use transfer-on-death designations filed with financial institutions or investment professionals to allow an outside party to assume ownership of their account after their passing. Deeds can also play a role in allowing for a property transfer that does not involve the probate courts.
No two state tax plans are identical. People often need assistance evaluating their exposure and crafting plans that adequately address their various resources. Consulting with an estate planning attorney familiar with estate tax regulations can be critical for those with high-value estates. Prior planning is key to maximizing what chosen beneficiaries inherit and minimizing losses to state and federal taxes.
