We’ve discussed various unique aspects of the New York estate tax in the past. One of them is the tax “cliff” that an estate can fall off if its value exceeds 105% of the estate tax exemption amount – leaving the estate owing state taxes on its entire value. That exemption amount for 2026 is $7.35 million.
One way that New York taxpayers have been able to avoid that cliff is by gifting some of their assets while they’re still alive. New York has no state gift tax, so they only need to consider the federal gift tax exclusion limit.
Understanding the “clawback” provision
To prevent people from giving away large amounts of their estate in the years immediately prior to their death, New York law has included what’s called a “clawback” provision. That allows the state to add the value of gifts given within three years prior to a person’s death back on to the estate’s gross value for tax purposes. That can add considerably more to the state estate tax due, especially if it causes an estate to go over that cliff.
The clawback provision was scheduled to expire in December of last year. However, it has been extended until Jan. 1, 2032. That means people are wise to avoid gifting considerable assets to reduce their gross estate value within a short period of time since no one can know for certain when they’ll pass away. Certainly, doing it when faced with a terminal diagnosis can prove pointless if the goal is to reduce the amount of New York estate tax due.
The three-year clawback period does not apply for federal estate tax purposes, however. That means gifting assets, even in the three years before someone’s death, can still reduce the value of a person’s federal gross estate.
There are, however, other ways to avoid or at least minimize New York estate taxes due, such as charitable donations, certain trusts and more. With experienced estate planning guidance, New York residents can maximize the amount of wealth they leave to loved ones and charitable organizations while reducing the amount of money that goes to the government.