New York Estate Tax: A Complete Guide for 2026

New York is one of twelve states (plus the District of Columbia) that imposes its own estate tax separate from the federal estate tax. For families in Westchester County, where property values, retirement accounts, and investment portfolios can combine to create significant estate values, understanding the New York estate tax is not optional. It is essential.

This guide covers the 2026 New York estate tax rules in full: the basic exclusion amount, the rate structure, the unique “cliff” provision that distinguishes New York from every other state, and the planning strategies that Westchester families should consider.

The 2026 Basic Exclusion Amount

For decedents dying on or after January 1, 2026, through December 31, 2026, the New York basic exclusion amount is $7,350,000. This figure is adjusted annually for inflation pursuant to Tax Law Section 952(c).

Estates valued at or below $7,350,000 owe no New York estate tax. Estates exceeding that amount are taxed on the excess, subject to the graduated rate schedule described below, unless the estate exceeds the “cliff” threshold discussed in the next section.

For context, the federal estate and gift tax exemption is now $15,000,000 per person ($30,000,000 per married couple) following the One Big Beautiful Bill Act signed in July 2025. This means that many Westchester families will owe New York estate tax without owing any federal estate tax. The gap between the New York exclusion and the federal exemption creates a planning window that did not exist before 2026. Understanding how the two systems differ is essential for proper tax planning.

The Estate Tax Cliff

New York’s estate tax includes a provision found in no other state. When the value of a taxable estate exceeds 105% of the basic exclusion amount, the exclusion disappears entirely. The estate is then taxed on its full value from the first dollar, not just the amount exceeding the exclusion.

For 2026, the cliff threshold is $7,717,500 (105% of $7,350,000).

Here is what that means in practice:

• An estate valued at $7,350,000 owes zero New York estate tax.
• An estate valued at $7,500,000 owes tax only on the $150,000 exceeding the exclusion.
• An estate valued at $7,717,500 owes tax on the entire $7,717,500, because it has crossed the 105% threshold.

The difference between an estate of $7,700,000 and one of $7,720,000 can be hundreds of thousands of dollars in tax liability. This cliff provision makes precise estate valuation and proactive planning critical for families anywhere near the exclusion amount.

For a detailed analysis of the cliff and strategies to avoid it, see The New York Estate Tax Cliff.

New York Estate Tax Rates

New York imposes its estate tax at graduated rates ranging from 3.06% to 16%. The rate applies to the taxable estate (the amount above the basic exclusion, or the full estate if the cliff applies). The rate schedule for 2026 is as follows:

For estates that remain below the cliff (i.e., between $7,350,000 and $7,717,500), the tax applies only to the amount exceeding the basic exclusion. The computation begins at the lowest bracket and works upward. For estates exceeding the cliff, the tax applies to the full estate value using this same table.

How the New York Estate Tax Is Calculated

The New York estate tax is computed on Form ET-706, which must be filed with the New York State Department of Taxation and Finance within nine months of the date of death. Extensions are available.

The taxable estate for New York purposes starts with the federal gross estate, then applies New York-specific modifications. The most significant modification involves the treatment of lifetime gifts: New York does not impose a gift tax, but any taxable gifts made within three years of death are added back to the New York taxable estate (Tax Law Section 954(a)(3)).

This three-year clawback is important for planning purposes. A gift made four years before death is permanently outside the New York estate. A gift made two years before death is pulled back in. The timing of lifetime gifts matters.

New York vs. Federal Estate Tax: Key Differences

Westchester families need to understand how the state and federal systems interact. The differences are substantial.

Exclusion amounts. The federal exemption is $15,000,000 per person in 2026. The New York exclusion is $7,350,000. For a married couple, the federal combined exemption is $30,000,000; the New York combined exclusion is $14,700,000 (with important caveats about portability, discussed below).

Portability. Under the federal system, a surviving spouse may elect to use the deceased spouse’s unused exemption amount (known as “portability”). This means a married couple can shelter up to $30,000,000 from federal estate tax without any trust planning. New York does not allow portability of the state estate tax exclusion. If the first spouse dies with an estate below $7,350,000, the unused portion of that exclusion is lost. This is one of the most important planning distinctions for married couples.

Gift tax. The federal government taxes lifetime gifts exceeding the annual exclusion ($19,000 per recipient in 2026). New York does not impose a gift tax. However, as noted above, gifts made within three years of death are clawed back into the New York estate.

The cliff. The federal estate tax has no cliff provision. The federal exemption functions as a true exemption: estates above the threshold pay tax only on the excess. New York’s cliff means the entire exemption can disappear if the estate exceeds 105% of the exclusion.

Tax rates. The federal estate tax rate is a flat 40% on amounts exceeding the exemption. New York’s rates are graduated from 3.06% to 16%.

No Portability: Why Married Couples Must Plan Differently

The absence of portability under New York law is the single most consequential planning issue for married couples in Westchester County.

Under the federal system, a couple can afford to leave everything to the surviving spouse and rely on portability to preserve the deceased spouse’s unused exemption. Under New York law, that approach wastes the first spouse’s $7,350,000 exclusion entirely.

The standard solution is the credit shelter trust (also called a bypass trust or family trust). When the first spouse dies, assets up to the exclusion amount are placed in a trust for the benefit of the surviving spouse and children. The surviving spouse can receive income from the trust and, depending on the trust terms, principal distributions for health, education, maintenance, and support. At the surviving spouse’s death, the trust assets pass to the next generation without being included in the surviving spouse’s estate.

This approach preserves both spouses’ New York exclusions and can shelter up to $14,700,000 from the New York estate tax in 2026.

Lifetime Gifting Strategies

Because New York does not impose a gift tax, lifetime gifting is one of the most effective strategies for reducing the taxable estate below the exclusion or below the cliff threshold.

Several approaches are available:

Annual exclusion gifts. Federal law permits gifts of $19,000 per recipient per year (2026) without using any of the lifetime exemption. A married couple can give $38,000 per recipient per year. Over time, these gifts remove significant value from the estate.

Gifts beyond the annual exclusion. Gifts exceeding $19,000 use a portion of the federal lifetime exemption but are not subject to any New York tax, provided the donor survives at least three years after making the gift. For donors whose estates are near the New York cliff, a strategic gift program can bring the estate below the threshold.

Gifts to irrevocable trusts. Gifts to a properly structured irrevocable trust remove assets from the estate and can provide asset protection and generation-skipping benefits. The trust must be structured carefully to avoid inclusion in the donor’s estate under the federal estate tax rules.

The three-year rule. Any planning that relies on lifetime gifts must account for the three-year clawback. Gifts made within three years of death are added back to the New York estate. This means gifting should begin as early as possible, not as a deathbed strategy.

The “Santa Clause” Strategy

One approach to the cliff is a conditional charitable bequest written into the will or revocable trust. The provision works as follows: if the estate, at the time of death, would exceed the cliff threshold, the excess amount is directed to one or more charities. The charitable deduction reduces the taxable estate below the cliff, preserving the full exclusion.

This strategy is sometimes called the “Santa Clause” (a deliberate play on words). It requires careful drafting: the bequest must be contingent on the estate actually exceeding the cliff, and the charitable beneficiary must qualify under both federal and New York law.

The Santa Clause can serve as a safety net for families whose estates are near the cliff but difficult to value precisely (for example, estates that include real property, closely held business interests, or illiquid assets).

Why the New York Estate Tax Matters in Westchester County

Westchester County presents a specific set of factors that make the New York estate tax especially relevant.

Property values. Median home values in many Westchester communities exceed $700,000, and values in Scarsdale, Bronxville, Chappaqua, Rye, and similar communities regularly exceed $1,500,000. A single piece of real property can represent a significant portion of the New York exclusion.

Retirement accounts. IRAs, 401(k) accounts, and other qualified plans are included in the gross estate. Decades of contributions and growth can produce retirement account balances that, combined with a home and other assets, push a family over the exclusion.

Life insurance. Life insurance proceeds paid to the estate, or over which the decedent retained incidents of ownership, are included in the gross estate. A $1,000,000 life insurance policy can be the difference between an estate that is exempt and one that is not.

Dual-income professional families. Westchester is home to a large population of dual-income professional families whose combined assets, accumulated over a working lifetime, can approach or exceed the exclusion without any single extraordinary asset.

Filing Requirements

An estate tax return (Form ET-706) must be filed with the New York State Department of Taxation and Finance if the total of the federal gross estate plus any includible gifts exceeds the basic exclusion amount for the year of death. The return is due within nine months of the date of death. An automatic six-month extension of time to file is available, but the extension does not extend the time to pay.

Interest accrues on any tax not paid by the original due date. Penalties may apply for late filing.

The executor or administrator of the estate is personally responsible for filing the return and paying the tax.

Planning Ahead

Every Westchester family with assets approaching the New York exclusion amount should consider the following:

Review the estate plan. If the current plan does not account for the New York estate tax, or if it was drafted when the exclusion was lower (or higher), it may need updating.

Consider credit shelter trust planning. For married couples, the absence of portability makes trust-based planning essential rather than optional.

Start a gifting program. Annual exclusion gifts, made consistently over time, can materially reduce the taxable estate. The three-year clawback means the sooner gifts begin, the more effective they are.

Review life insurance ownership. If life insurance proceeds would push the estate over the exclusion, consider an irrevocable life insurance trust (ILIT) to hold the policy outside the estate.

Get a current valuation. Families with real property, business interests, or other hard-to-value assets should obtain current appraisals so they know where the estate stands relative to the exclusion and the cliff.

Related Topics

• The New York Estate Tax Cliff: What It Is and How to Avoid It
• New York Estate Tax Exemption: 2026 Amount and Annual Adjustments
• Portability and New York Estate Tax: Why Married Couples Must Plan Differently
• Credit Shelter Trust Planning for New York Estate Tax
• Lifetime Gifting Strategies to Reduce New York Estate Tax
• Estate Planning in Westchester County: What Every Family Should Know