Two systems, two exclusions
You face two estate tax systems with two different exclusions. New York sets the lower one, so your estate can owe New York a substantial amount and owe the federal government nothing.
Key takeaways
No gift tax, but a 3-year lookback
New York charges no gift tax, and it requires your estate to add back taxable gifts you made in the three years before your death. Gift more than three years before you die and New York leaves it out of the estate.
No portability
New York does not allow portability. Where the first spouse to die does not use their New York exclusion, the survivor cannot claim it, and an executor preserves it by making a New York QTIP election on the first estate's return.
Two systems, and they do not match
A New York estate can owe the state a great deal and owe the federal government nothing.
| Federal | New York | |
|---|---|---|
| Estate tax | ||
| Gift tax | — | |
| Portability between spouses | — | |
| Cliff, all or nothing | — | |
| Gifts added back before death | — |
existsdoes not exist
The mismatch between the two systems is where most New York planning failures happen.
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Work out the state position first
Two systems, one starting point
New York taxes estates the federal government does not reach. The federal exclusion sits high enough that most New York estates never file a federal return, while the same estates can owe New York a substantial amount. So a New York family works out the state position first.
01The federal/state gap
Where New York's estate tax differs from the federal one
- A lower exclusion. New York sets its own basic exclusion amount and adjusts it each year, and it sits below the federal exclusion. See the New York estate tax threshold for the current figure.
- A cliff at 105 percent of the exclusion. Where your taxable estate exceeds the exclusion by more than five percent, New York taxes the whole estate rather than the excess, because the credit that offsets the tax phases out completely across that band.
- No portability. Federal law allows a surviving spouse to claim the first spouse's unused federal exclusion. New York does not allow it, so a couple who leave everything to each other use one New York exclusion between them.
- A three year lookback on gifts. New York requires your estate to add back taxable gifts you made in the three years before your death, so a gift made in that window does not reduce what New York taxes. The rule applies to estates of deceased persons dying before January 1, 2032.
02Gifts during life
How gifts affect a New York estate
New York charges no gift tax, and your gifts still change what New York taxes at your death.
New York requires your estate to add back taxable gifts made in the three years before death. Gifts you made more than three years before you die stay out of the New York estate, so the date you give decides whether the gift works.
Federal gift tax works differently.
Annual exclusion
$19,000
per recipient, per year (2026 figure)
You give up to $19,000 per recipient, per year, outright, without filing a return or using any of your lifetime exemption.
Above the exclusion
Form 709
files against your lifetime exemption
You reduce the lifetime exemption available to your estate by the excess instead of paying tax now. Once you have used that exemption up, you pay gift tax in the year you give.
Tuition & medical
Unlimited
paid directly to the school or provider
Pay a school or a provider directly, for anyone, and both governments exclude the payment entirely. It does not use up your annual exclusion.
Give consistently over years and you move real value out of the New York estate. Make each gift more than three years before you die, and document it when you make it.
03The 3-year add-back exceptions
Which gifts New York does not add back
New York excludes four kinds of gift from the three year add back. Your estate does not add back a gift you made:
- while you were not a New York resident. New York looks at where you were resident on the date of the gift, not at your death.
- before April 1, 2014. New York does not add back gifts you made before the rule took effect.
- between January 1 and January 15, 2019. New York let the rule lapse and then reinstated it. Gifts made in those two weeks stay out.
- of real or tangible property with an actual situs outside New York State. Situs is tested when you make the gift. An out of state house stays outside the New York estate however close to death you gave it.
Where the person who died was not a New York resident, New York adds back a narrower set:
- gifts of real or tangible property located in New York, and
- gifts of intangible property employed in a business, trade or profession carried on in New York.
New York applies the add back to estates of deceased persons dying before January 1, 2032, and has extended that date twice. An executor reads the rule as it stood on the date of death.
04Basis step-up trade-off
Your heirs lose the basis step up on anything you gift
Gift an asset and your heirs take your basis in it. Leave the same asset in your estate and your heirs take a basis equal to its value at your death. They pay no tax on the gain that accrued while you held it.
Gift an appreciated asset and you save New York estate tax on its value. You also hand your heirs a capital gains bill on its growth. Gift cash, or an asset worth close to what you paid, and you give up nothing on that side.
Which assets to gift.Cash, and assets you bought at close to what they are worth now.
Which to keep.Assets you have held a long time and that have appreciated, where the step up is worth more to your heirs than the New York estate tax.
What we compare.Your New York exposure against the capital gains your heirs would pay, on that specific asset, before you transfer anything.
05Married couples & QTIP
How a married couple keeps both New York exclusions
A couple keeps both by using the first spouse's exclusion at the first death. An executor does that with a New York QTIP election.
New York requires the election directly on the New York estate tax return, for deceased persons dying on or after April 1, 2019. Any election made under that provision is irrevocable.
An executor splits the first estate in two with the election:
Property inside the election
The estate pays no New York tax on it, and the survivor keeps the benefit of it for life.
Property outside the election
New York taxes it at the first death, and an executor uses the first spouse's exclusion against that tax.
Two things decide where an executor draws that line:
- Above the cliff, a couple lose the whole exclusion. Overshoot the New York exclusion by more than five percent and New York taxes the first estate from the first dollar.
- A non citizen spouse needs a qualified domestic trust. You claim the unlimited marital deduction only where a qualified domestic trust holds the property. For deaths on or after July 1, 2025, New York requires one even where the estate files no federal return.
New York includes QTIP property sheltered at the first death in the survivor's New York gross estate at the second. So an executor defers the tax on it rather than removing it.
06Nonresidents
If you are not a New York resident
New York taxes a non resident's estate on real and tangible property located in the state.
New York requires the estate to file where both of these apply:
- the estate holds New York real or tangible property, and
- the federal gross estate plus includible gifts exceeds the basic exclusion amount.
Own a New York house and you can still owe New York nothing, where the estate as a whole comes in under the exclusion.
Moving away does not end it. Keep New York property and New York keeps its claim. For estate tax New York looks to your domicile. You keep that domicile until you show you abandoned it and established a new one.
07What we handle, and what your attorney handles
What we do, and what an attorney does
We calculate the exposure and file the returns:
Form ET-706
the New York estate tax return.Federal Form 706
which New York requires alongside it even where no federal return is otherwise due.Gift tax returns
and the income tax returns for the estate while the executor administers it.
New York gives an executor nine months from the date of death to file and pay. An executor can request a six month extension of time to file.
The instruments, the wills and trusts that carry out the plan, are drafted by an attorney. We work alongside yours, and the calculation usually has to come first so that the drafting has something to aim at.
9 months
from date of death to file and pay Form ET-706
+6 months
extension available to file — not to pay
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serving NYC
150,000+
returns filed
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From the record
On why proper estate planning matters
"You've already paid tax on this money when you are earning it actively, and then all of a sudden it gets taxed again when it goes to your child or your grandchild or whoever it's going to. So proper estate planning is very important."
George Dimov, CPA
Founder, Dimov Tax
"If I have a tax issue that comes up, I immediately think of George because you're very responsive and helpful and knowledgeable. And that's exactly what you're looking for in a very complex topic that you don't want to get wrong."
Kevin
Estate attorney · interview
Find out where the estate actually sits
Send us a rough asset list and we will tell you the exposure under both systems and whether the gap is worth planning around. Call (212) 641-0673 or send the contact form. No charge for the conversation.
Reviewed by George Dimov, CPA, New York, NY. Serving clients in all 50 states, 15+ years advising New York businesses and individuals. President of George Dimov, CPA, a New York City firm serving clients across the five boroughs and nationwide.