Tax Strategy Consulting for High Net Worth Individuals in New York City

The cliff is a feature of New York’s estate tax that can tax your entire estate, not just the part above the exclusion, once you cross a narrow line. New York gives each estate a basic exclusion amount, $7,350,000 for 2026. If your taxable estate stays at or below that figure, no New York estate tax is due. But the exclusion phases out as the estate grows, and once the taxable estate exceeds 105 percent of the exclusion, about $7,717,500, the exclusion disappears completely. At that point the whole estate is taxed at rates that climb to 16 percent, not merely the amount over the exclusion. The result is a brutal step. An estate at $7,350,000 owes nothing, while an estate at $7,717,500 loses the entire exclusion and faces a New York estate tax around $680,000. That roughly $367,000 of additional assets triggers roughly $680,000 of tax, an effective marginal rate well over 100 percent inside the danger band. This is why the cliff dominates planning for New York families and why staying below it, usually through lifetime gifting, is so valuable. We project your taxable estate, measure the distance to the cliff, and design the plan to keep you under it.

It helps with federal estate tax but does almost nothing for the New York problem, which is the one most New York City families actually face. The federal estate and gift tax exemption is $15 million per person for 2026, and $30 million for a married couple, and the recent law made that level permanent and indexed to inflation. For most families, even wealthy ones, that means no federal estate tax at all. But New York runs its own separate estate tax with an exclusion of only $7,350,000 for 2026, less than half the federal figure, and with the cliff that can tax the entire estate once you cross 105 percent of it. So a New York family can be far below the federal line and still owe a large New York estate tax. A married couple with a $15 million estate owes no federal estate tax, yet without planning that same estate is well over the New York cliff and exposed to state tax up to 16 percent. The high federal exemption is useful because it lets you make large lifetime gifts without federal gift tax, which is exactly the tool for getting under the New York cliff. The federal change does not solve the New York problem, but it gives you room to plan around it.

It is one of the most useful facts in New York estate planning. New York imposes no gift tax, which means you can give assets away during your life without the state taxing the transfer, even though it will tax your estate at death. That asymmetry is the opening. Every dollar you move out of your taxable estate through lifetime gifts is a dollar that the New York estate tax, and its cliff, can no longer reach. You can use the federal annual exclusion to give $19,000 per recipient for 2026, $38,000 for a married couple splitting gifts, to as many people as you like with no gift tax and no use of your lifetime exemption, and you can make larger gifts that draw on the $15 million federal lifetime exemption while still paying no New York gift tax. Over years, a disciplined gifting program can move a great deal of value out of the estate and bring it safely under the New York cliff. The one limit to respect is the three-year add-back, gifts made within three years of death are pulled back into the estate for New York purposes, so the gifting has to happen while you have time. We build the program to move assets out steadily and well before that window matters.

Both are strong tools, and which fits depends on your goal. A donor-advised fund is the simpler of the two. You contribute cash or, better, appreciated stock to the fund, take an immediate charitable deduction in that year, and then recommend grants to charities over time. The deduction lands when you fund the account, so a donor-advised fund is ideal for taking a large deduction in a high-income year, reducing tax at the top federal rate of 37 percent plus New York and New York City tax, while spreading the actual giving out. A charitable remainder trust is more involved and does more. You transfer an appreciated asset into the trust, the trust can sell it without an immediate capital gains tax that would otherwise reach 23.8 percent federally, you receive an income stream for life or a term of years, and whatever remains passes to charity. It defers the gain, generates a partial deduction at funding, and removes the asset from your taxable estate, which helps with the New York cliff. A donor-advised fund suits a family that wants simplicity and a current deduction. A charitable remainder trust suits one holding a highly appreciated asset it wants to sell tax-efficiently while keeping income. We model both on your numbers before recommending one.

Timing matters more in New York because the state gives capital gains no break, so the goal is to manage the federal rate while accepting that New York and the City will tax the gain as ordinary income. The first rule is the holding period. A long-term gain, on an asset held more than one year, is taxed federally at up to 23.8 percent once the net investment income tax applies, while a short-term gain is taxed as ordinary income at up to 37 percent. Holding a position past the one-year mark, where the investment thesis allows, can save more than thirteen points of federal tax. Beyond that, we look at which year to recognize a large gain, because pushing a big sale into a year with lower other income can keep more of it under the surtax thresholds and the top bracket. We also use loss harvesting to offset gains, coordinate large recognitions with charitable gifts that can absorb the income, and watch the interaction with the alternative minimum tax. On the New York side there is no rate to manage, the gain is taxed at up to 10.9 percent at the state level plus the City tax regardless, so the work is federal, but the New York cost is part of the total we model. We run the after-tax result before a major sale so the timing decision rests on the real combined number.