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New York has multiple laws that can affect large estates

On Behalf of | May 16, 2024 | Estate Planning

New York, unlike most states, has an estate tax. That means large estates may end up being subject to state as well as federal estate tax. Like federal estate taxes, state estate taxes can be avoided or at least minimized with careful estate planning.

New York has several laws in place that limit the steps people can take to avoid the state estate tax. Let’s take a brief look at a few terms it’s important to know.

The “cliff”

As with federal estate tax, there’s a threshold amount, and the value of the estate over that threshold may be assessed the state tax. However, if the estate’s value is more than 5% over it, that’s what’s known as the “cliff.” If the amount of the estate subject to state tax is over that 5%, the entire estate is subject to tax. For 2024, the state threshold is $6.94 million.  

The “Santa Clause”

This can be used to avoid the threshold and the cliff. A Santa Clause is used to leave assets to a non-profit organization that would put it over one of these or some other designated amount. Of course, if a person wants to leave a portion of their estate to one or more charitable organizations, they should do it separately from the Santa Clause, since that may not be needed.

The “clawback”

People often give some of their assets to family and others while they’re still alive to reduce the value of their estate. To help dissuade people from giving away a substantial portion of their assets in their final years, New York has a “clawback” rule. The value of assets (located within the state) given away within three years before a person’s death is “clawed back” to the estate. This could put the value of the estate back over that threshold – or the cliff.

This is just a very brief overview. However, it should give you some indication of how complex New York law can be for large estates. Having experienced legal guidance is crucial to maximizing the value of your estate for your loved ones and other beneficiaries.