What Is the Estate Tax — and Why Is It Called a ‘Death Tax’?
The estate tax is a tax on the transfer of property upon death. When someone dies, the aggregate value of everything they owned — real estate, bank accounts, investments, business interests and personal property — is summed to create the so-called “gross estate.” If that total is greater than a certain limit, tax is owed before the leftover assets can be distributed to beneficiaries.
Critics call the tax a “death tax,” since it is imposed on death rather than an income or a transaction. That is largely a political label: Critics argue that taxing wealth accumulated over a lifetime — the assets were probably already taxed at some point through by way of income, capital gains or other taxes — represents yet another (or second) taxation on the same pool of wealth.
In the United States, estate taxes work on both a federal and state level. The federal estate tax is identical in all fifty states, and has a generous exemption that protects the majority of Americans. New York, though, assesses its own separate estate tax alongside the federal system — at a much lower exemption level. That means an estate of a New York resident could owe state estate tax when it owes nothing to the feds — a crucial thought for residents with moderate-to-high net worth.
The NY Estate Tax Exemption for 2026
New York State, for 2026, has a basic exclusion amount of $7,350,000 per person — an increase of $190,000 from the 2025 exemption amount of $7,160,000. Estates with a value of this amount or less pay no New York estate tax.
The exemption at the federal level is much more generous. After the most recent legislation, the federal estate and gift tax exemption will rise to $15 million per person (or $30 million for a married couple) starting in 2026. This means that the vast majority of Americans will owe no federal estate tax, but New York residents with estates above $7.35 million may continue to have a large state tax bill.
Unlike the federal exemption, New York’s is not “portable” between spouses. At the federal level, a surviving spouse can assume their deceased spouse’s unused exemption, effectively doubling the protection to $30 million. New York provides no such portability, so careful advance planning is key for married couples whose combined estate might cross the $7.35 million threshold.
⚠️ New York “Tax Cliff”: This is one of the most misunderstood & dangerous parts of NY estate tax. If the value of an estate exceeds 105% of the exemption — which in 2026 is $7,717,500 — then there’s no longer any exemption and the full value of the estate is taxed. An estate of $7,800,000 might owe more than $700,000 in taxes — not on the excess but on all of it. This cliff effect makes careful planning important for estates on either side of the threshold.
Who Must Pay Estate Taxes in New York?
The New York estate tax is imposed on the estates of residents of New York State whose gross estate — plus any taxable gifts made within three years of death — exceeds the $7,350,000 exemption amount. For nonresidents, New York applies estate tax only to real property and tangible personal property physically situated in the state.
Practically speaking, this affects:
- People with New York real estate, including second homes or investment properties — whose combined estates exceed the threshold.
- Business owners whose business interests with other assets takes their estate over $7.35 million.
- Retirees with substantial investment portfolios, retirement accounts and real estate who might be surprised to be above the threshold.
New York estate tax is not due on assets passing to a surviving spouse — the unlimited marital deduction works at the state level, as it does federally. Assets given to qualified charities are also exempt. But the bill for estate taxes comes due on the second spouse’s death, so planning is crucial to the surviving spouse’s estate.
Hypothetical: A widower who dies in 2026 with $5 million in retirement and investment accounts, as well as a $3 million Manhattan apartment, has a gross estate of $8 million. Since that exceeds both the exemption ($7.35M) and the cliff threshold ($7.717M), his entire $8 million estate is subject to New York estate tax — potentially at a rate approaching 16%.
When Is Estate Tax Due in New York?
In New York, estates are required to file Form ET-706 (the New York State Estate Tax Return) and pay any tax owed within nine months from the decedent’s date of death. Even if no federal tax is needed to pay, a Federal Form 706 must also be filed with the state return.
Extensions are available. Using Form ET-133, the estate can request an extension of time to file, pay, or both. Extensions may not generally extend a total of six months. In cases of proven undue hardship, the state may grant repayment extensions of up to four years — though interest will accrue on any unpaid balance while the extension is in place.
There are penalties for both late filing and late payment. Interest is charged on any tax that remains unpaid past its original due date, even if the taxpayer was granted an extension. It is therefore prudent to make at least a partial payment by the nine-month deadline, even if the final amount of tax has not yet been accurately determined.
How to Avoid or Minimize New York Estate Tax?
And as New York has no gift tax, lifetime giving is one of the best and simplest tools available to decrease a taxable estate. You can transfer $19,000 per recipient in 2026 (the federal annual gift tax exclusion) without incurring any gift tax or reducing your lifetime exemption. Married couples can pool their exclusions and give $38,000 per recipient each year.
But there’s one important caveat: that the gifts made in the three years prior to death are “clawed back” and added back into the New York estate for tax calculation purposes. This means that effective gifting strategies must begin long before death. Gifts made more than three years before death are disregarded entirely from the New York estate calculation.
Beyond gifting directly, a New York estate planning attorney may frequently utilize several trust structures:
- Irrevocable Life Insurance Trusts (ILITs): By transferring life insurance policies to an irrevocable trust, the death benefit falls outside your taxable estate and can prevent pushing an estate over and above the exemption.
- Spousal Lifetime Access Trusts (SLATs): One spouse gifts assets into a trust for the other spouse, taking the asset out of the taxable estate while still maintaining indirect access through the beneficiary spouse.
- Grantor Retained Annuity Trusts (GRATs): Best for getting appreciating assets (real estate, business interests) to heirs while incurring less of a gift tax hit.
Charitable giving: A gift of assets to qualified charities — outright or via charitable trusts — shrinks the taxable estate. And there’s a “Santa Claus” provision that can be part of an estate plan, which can gift away the amount that would otherwise get taxed, thereby reducing the estate to less than what is exempt.
For married couples, the law can help you fully exploit each spouse’s $7.35 million exemption using a type of revocable trust called a credit shelter trust (or bypass trust) — instead of wasting one spouse’s exemption by passing everything to the surviving spouse outright.
Practical Tips for New Yorkers
Start planning early. But the three-year gift look-back rule — as it is known — prevents last-minute gifting strategies from having any impact on your New York estate tax. The earlier you start to move assets, the more choices you have.
Get a professional valuation of your assets today — particularly real estate, which has appreciated considerably in many New York markets. The first step to understanding your exposure: know your current estate value.
Update your estate plan whenever major life events happen: a family death, a substantial change in asset values, marriage or divorce, or the arrival of offspring. Estate plans are not set-it-and-forget-it documents.
Retain a qualified estate planning attorney who is familiar with New York State estate tax. The cliff provision; the lack of portability and three-year gift rule all create nuances that require local expertise.
Keep thorough documentation. In the case of an audit or dispute with the New York State Tax Department, proper documentation of gifts and trust transfers, business valuations, and asset ownership structures are critical.
Take Control of Your Legacy — Don’t Leave It to Chance
At Bartal Law Life & Legacy, Atty. M., has more than 15 years of experience serving New York families in wills, trusts and estate planning and legacy protection. With offices in Fresh Meadows, Queens, they serve clients throughout New York City and Long Island — which includes Manhattan, Brooklyn, the Bronx, Nassau and Suffolk counties — to provide a boutique estate planning experience that bigger firms can’t come close to.
Bartal Law stands out because of the firm’s emphasis on education. Before any plan is drafted, attorney Bartal takes the time to explain all options in plain English — no jargon, no pressure — so you and your loved ones can make informed decisions. Estate plans are unique and customized to your goals, family structure, and assets — we create everything from Powers of Attorney and Healthcare Proxies to Irrevocable Trusts and Business Succession.
Estate planning is, as the attorney Bartal describes it, “an everlasting gift you give both yourself and your loved ones.” The ramifications of no planning — probated delays that can stretch out for years, unnecessary estate taxes chewing into the wealth you spent a lifetime accumulating, assets going to the wrong people or loved ones left without explicit direction — are fully avoidable.
Disclamer: This article is meant for educational purposes only and shall not be considered as legal or financial advice. Tax laws are subject to change and may differ between 2023 and 2024. Please consult with a qualified estate planning attorney or tax professional for advice specific to your situation.