Smart planning practices are fundamental for estates approaching or exceeding the current New York estate tax thresholds—$7.16 million in 2025—in order to minimize or fully prevent state estate tax liability. Unlike inheritance tax, which New York does not impose, estate tax is calculated on the total value of the decedent’s estate before assets are allocated. So, how can you lower or even sidestep the tax burden?
The effective strategies are presented below:
- Lifetime Gifting: Lowering the taxable estate through lifetime gifts can have a reducing impact on the estate’s overall value. The federal and state gift tax limits should be taken into consideration. Gifting assets early can be leverageable in reducing exposure.
- Charitable Contributions: Donations to qualified charities can remove assets from the taxable estate. This not only benefits causes you care about but can also lessen the estate’s taxable value.
- Credit Shelter Trusts: These trusts enable couples to take full advantage of both spouses’ estate tax exemptions. After one spouse passes, the assets can be transferred to a trust rather than directly to the surviving spouse. It simply preserves exemption amounts.
- Irrevocable Life Insurance Trusts (ILITs): Life insurance proceeds paid to the estate may increase the estate value. Placing the policy in an ILIT keeps the proceeds out of the taxable estate.
- Valuation Discounts: In specific scenarios, fractional ownership in real estate or businesses might be valued at less than market price. This can reduce the gross estate reported on Form ET-706.
Final Note
The estate tax vs. inheritance tax distinction in New York should be acknowledged by executors in the context of smart decision-making mechanisms. Since the tax applies to the estate—not the heirs—reviewing the Form ET-706 instructions and adhering to an estate tax return checklist NY can be the smartest step.
If you need any assistance with NY estate tax filing requirements, contact Dimov NYC CPA today.