Estate Tax Exemption Planning Attorney in New York & NJ

What Is an Estate Tax Exemption?

An estate tax exemption is the amount of your estate that passes to your heirs free of estate tax. Transfers below the exemption amount are not taxed. Transfers above it are subject to tax at rates that can reach 16% (NY) or 40% (federal).

Both New York and the federal government set their own exemption amounts, which change over time. You can have exposure to one, both, or neither depending on how your estate is structured, which state you're domiciled in, and when you die.

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New York's Estate Tax Exemption: Key Features

**The 2025 threshold.** New York's estate tax exemption for 2025 is $7,160,000 per person. This applies to New York State residents and, in some cases, to non-residents who own real property in New York.

**No portability.** This is the most important difference between New York and federal estate planning. When a spouse dies, the federal government allows their unused exemption to transfer to the surviving spouse — a concept called portability. New York provides no such benefit. If the first spouse dies without a Credit Shelter Trust, their exemption is wasted. The surviving spouse then has only their own $7.16M exemption to protect the entire combined marital estate. For couples with estates between $7M and $14M, this distinction can mean hundreds of thousands — or more — in additional NY estate tax.

**The cliff.** New York has a "cliff" in its tax structure: if your estate exceeds 105% of the exemption, the full estate becomes taxable — not just the excess. In 2025, that cliff is at approximately $7,518,000. Estates just above this amount can owe substantially more tax than those just below it. Valuation discounts, strategic gifting, and trust structures are all used to manage cliff risk.

**NY does not impose gift tax.** This creates significant planning opportunities. Lifetime gifts reduce your NY taxable estate and are not subject to a NY-level gift tax. Combined with annual exclusion gifting, this can steadily reduce exposure over time without federal gift tax consequences either.

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Federal Estate Tax Exemption: The 2026 Sunset

The Tax Cuts and Jobs Act (TCJA) of 2017 temporarily doubled the federal estate and gift tax exemption. As currently written, those provisions expire December 31, 2025. Beginning January 1, 2026, the federal exemption is expected to revert to approximately $7 million per person, adjusted for inflation — roughly half the current amount.

For a married couple, this represents the potential loss of approximately $14 million in combined federal exemption. Any amount above the post-sunset exemption that was not transferred before the deadline will be exposed to federal estate tax at rates up to 40% at the time of death.

**The good news:** the IRS issued regulations in 2019 confirming that gifts made at the higher exemption amount will not be "clawed back" after the sunset. If you make a taxable gift of $13.99M today, that gift is sheltered — permanently — even if the exemption later drops to $7M.

**This makes 2025 a uniquely important planning year.** Every day that passes is a day closer to losing access to the elevated exemption.

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The Credit Shelter Trust: NY's Most Important Exemption Tool

A Credit Shelter Trust (CST) — also called a Bypass Trust, Family Trust, or B Trust — is the primary mechanism for preserving both spouses' New York estate tax exemptions.

Here is how it works: when the first spouse dies, an amount equal to the estate tax exemption is transferred into the CST rather than passing outright to the surviving spouse. The surviving spouse can benefit from the trust assets (receiving income, and sometimes principal for health, education, maintenance, and support), but the assets are not included in the surviving spouse's estate at death. They pass directly to the remainder beneficiaries — typically children — free of estate tax at the second death.

Without a CST, the entire estate typically passes to the surviving spouse, consolidated under one person's single exemption. With a CST, both exemptions are used, and a married couple can shelter up to $14.32 million from NY estate tax (2025 figures) rather than $7.16 million.

For many married couples in the New York metro area, the CST is the most valuable single estate planning decision they will make.

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Using the Federal Exemption Before December 31, 2025

Strategies to capture the elevated federal exemption before the sunset include:

**Outright gifts.** The simplest approach — gifts of cash, securities, or other assets to children or trusts — use the lifetime exemption and remove the assets from your estate permanently.

**Spousal Lifetime Access Trust (SLAT).** A SLAT is an irrevocable trust created by one spouse for the benefit of the other. The grantor spouse transfers assets into the trust, using their federal exemption, while the beneficiary spouse retains access to the trust funds. This approach removes assets from the taxable estate while preserving some financial flexibility — an important consideration for families who are not yet ready to fully give up access.

**Irrevocable Trust Funding.** GRATs, ILITs, and QPRTs all present opportunities to use the current elevated exemption and lock in favorable terms before the rules change.

**Important:** SLATs created by two spouses for each other (a common strategy) must be carefully structured to avoid the "reciprocal trust doctrine," which could cause the IRS to ignore both trusts. Attorney guidance is essential.

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Portability: Federal Relief That New York Doesn't Offer

The federal estate tax allows a surviving spouse to elect "portability" — claiming the deceased spouse's unused federal exemption. This election must be made on a timely-filed estate tax return (Form 706) for the first spouse's estate, even if no tax is owed.

If portability is elected, the surviving spouse can use the deceased spouse's unused exemption at the survivor's death. This is useful at the federal level, but it does not help with New York estate tax. NY residents must still use Credit Shelter Trusts to preserve both NY exemptions.

Filing a portability election is often advisable even for small estates, since exemption amounts may decrease in the future (as they will in 2026) and the preserved exemption amount can be more valuable than it appears at the time of the first death.

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