** This article has been revised from its original version which was published on March 16, 2022.

If you pass away in 2023 and the value of your estate exceeds the $6,580,000 basic exclusion amount by more than 5%, you will lose the exclusion benefit, and your entire estate will be subject to New York estate tax starting at the first dollar. You will “fall off the cliff” when your estate’s value exceeds 105% of the basic exclusion amount. The 2023 New York estate tax cliff is $6,909,000 (105% of $6,580,000).

Examples of How the New York Estate Tax Cliff Works in 2023

1. If the value of your taxable estate is $5,000,000, the New York estate tax would be $0. Your beneficiaries would inherit $5,000,000, less any estate administration expenses.
2. If the value of your taxable estate is $6,580,000, the New York estate tax would be $0. Your beneficiaries would inherit $6,580,000, less any estate administration expenses.
3. If the value of your taxable estate is between $6,580,000 and $6,909,000, you would only pay New York estate tax on the amount exceeding the $6,580,000 threshold. Therefore, if your estate is valued at $6,650,000, your taxable estate would be only $70,000, and the New York estate tax would be $180,827. Your beneficiaries would inherit $6,469,173, less any estate administration expenses, from a $6,650,000 estate, which is $110,827 less than what they would inherit from a $6,580,000 estate.
4. If the value of your taxable estate is $6,909,000, you fall off the cliff, the basic exclusion amount would be zero, and your entire $6,909,000 estate would be taxable and subject to a New York estate tax of $626,352. Your beneficiaries would inherit $6,282,648, less any estate administration expenses, from a $6,909,000 estate.

How can I mitigate the New York State Estate Tax Cliff?

1. You can consider making charitable bequestsand/or including a “Santa Clause” provision in your Last Will and Testament or trust for a conditional amount exceeding the New York state basic exclusion. The conditional charitable bequest would only be satisfied if the excess amount given to charity is less than the New York State estate tax due if the charitable bequest was not made.
2. You can also consider making gifts during your lifetime to reduce the value of your taxable estate below the exclusion amount. When gifting assets during your lifetime, you need to be mindful that even though New York doesn’t have a gift tax, New York “claws back” gifts made to your estate within three (3) years of your death, making them subject to New York estate taxes. In addition, although there is a federal gift tax, you can make gifts up to the federal gift and estate tax exemption which is $12.92 million per individual in 2023, without any federal gift tax liability.

Regardless of whether you will be adversely impacted by the New York estate tax cliff, it’s beneficial to revisit and review your estate plan. At Russo Law Group, P.C., we can assist you with your estate planning strategy and minimize estate taxes and income taxes.

When implementing an estate plan, it’s important to consult with and retain experienced attorneys. The knowledgeable and compassionate team at Russo Law Group, P.C., provides professional services and advice. Take advantage of our comprehensive website as well as our free seminars and webinars to learn more about how Russo Law Group, P.C. provides peace of mind. Please contact our law firm to speak with one of our experienced elder law and estate planning attorneys today at 1 (800) 680-1717.