If you pass away in 2022 and the value of your estate exceeds the $6,110,000 basic exclusion amount by more than 5%, you will lose the benefit of the exclusion and your entire estate will be subject to New York State Estate Tax starting at the first dollar. You will “fall off the cliff” when the value of your estate is greater than 105% of the basic exclusion amount. The 2022 New York State Estate Tax Cliff is $6,415,500 (105% of $6,110,000).

Here are examples for 2022:

1. If your taxable estate is valued at $5,000,000, the New York State Estate Tax would be $0. Your beneficiaries would inherit $5,000,000, less any estate administration expenses.
2. If your taxable estate is valued at $6,110,000, the New York State Estate Tax would be $0. Your beneficiaries would inherit $6,110,000, less any estate administration expenses.
3. If your taxable estate is valued between $6,110,000 and $6,415,500, you would only pay New York State Estate Tax on the amount exceeding the $6,110,000 threshold. Therefore, if your estate is valued at $6,180,000, your taxable estate would be only $70,000 and the New York State Estate Tax would be $173,898. Your beneficiaries would inherit $6,006,102, less any estate administration expenses, from a $6,180,000 estate, which is $103,898 less than what they would inherit from a $6,110,000 estate.
4. If your taxable estate is valued at $6,450,000, you would fall off the cliff, the basic exclusion amount would be zero, and your entire $6,450,000 estate would be taxable and subject to a New York State Estate Tax of $567,600. Your beneficiaries would inherit $5,882,400, less any estate administration expenses, from a $6,450,000 estate.

How can I mitigate the New York State Estate Tax Cliff?

1. You can consider making charitable bequests and/or including a “Santa Clause” provision in your Last Will and Testament or Trust to allow for a conditional charitable bequest of the amount exceeding the New York State basic exclusion amount. The conditional charitable bequest would only be satisfied if the excess amount that would go to charity is less than the New York State Estate Tax due if the charitable bequest was not made.
2. You can also consider making gifts during your lifetime to reduce the value of your taxable estate to below the exclusion amount. When gifting assets during your lifetime, you need to be mindful that even though New York does not have a gift tax, New York “claws back” into your estate gifts made within three (3) years of your death and, therefore, said gifts will be subject to New York State Estate Tax. In addition, although there is a Federal Gift Tax, you can make gifts up to the federal gift and estate tax exemption which is $12,060,000 for 2022, without any gift tax.

Regardless of whether you will be adversely impacted by the New York State Estate Tax Cliff, it is beneficial to revisit and review your estate plan. We at Russo Law Group, P.C. are available to assist you with your estate plan.

When implementing an estate plan, it is important to consult with and retain experienced attorneys. The knowledgeable and compassionate attorneys at Russo Law Group, P.C., can provide professional services and advise you. We invite you to take advantage of our comprehensive website as well as our free seminars and webinars to learn more about how Russo Law Group, P.C. may assist you and provide you with peace of mind.