New York has its own estate tax on high-value estates. Currently, estates valued at $7,350,000 or lower are exempt from that tax. As we’ve discussed previously, if an estate is valued at 105% of that amount, or $7,717,500, only the additional 5% is taxable.
However, 105% is considered the tax “cliff” because if it’s worth more than that, the entire estate is subject to New York estate tax. This can mean a lot of money owed to the state and not available for designated beneficiaries.
People who see their estate potentially going “over the cliff” may gift enough of their assets to loved ones and others while they’re still alive. However, New York has had a “clawback provision” in the law that allows the state to add the value of all gifts given within the three years before a person’s death back on to the estate’s gross value so that these relatively end-of-life gifts can’t be used to evade the cliff.
The clawback provision was written to expire or “sunset” at the end of 2025. However, New York legislators and the governor have extended that expiration until at least Jan. 1, 2032.
Exploring other tax-saving strategies is wise
Of course, people often don’t know when they’re within three years of their death unless they’ve received a specific terminal diagnosis. It’s a good idea to be aware, however, that the value of the gifts can be added back to the estate if they fall within that timeframe and make the difference between having an estate fully taxed or just a small percentage.
It may be smarter to look at other ways to avoid the New York estate tax. With sound estate planning guidance, New Yorkers with high-value estates can find the best strategy for themselves and their family.