New York estate tax applies only to estates over $6.94 million (as of 2024), and the main ways to reduce what you owe are to give money away during your lifetime, use trusts to shelter assets, or structure your estate plan so taxable property passes to your spouse or charity instead of your children.

The threshold changes yearly, so an estate worth $6 million today might not owe tax next year if the limit rises — but it can also fall if the law changes. Because New York's exemption is separate from the federal exemption, you can owe New York tax even if your estate is too small for federal tax. The strategies that work depend on your estate size, how much you want to give away now versus later, and whether you have a spouse.

This guide explains the main planning moves. None of them are automatic — they require paperwork filed during your lifetime or in your will — and some have trade-offs you should understand before you choose.

Key Takeaways

  • New York taxes estates over $6.94 million, but you can give away up to that amount tax-free during your lifetime without reducing your estate tax exemption.
  • Gifts to your spouse or to charity during your lifetime or in your will are never taxed by New York, no matter the amount.
  • An Irrevocable Life Insurance Trust (ILIT) removes the death benefit from your taxable estate, which can save thousands in tax on a large policy.
  • A may have access to Personal Residence Trust (QPRT) lets you keep living in your home while transferring it to your children at a reduced tax cost.
  • Portability — the ability to use your spouse's unused exemption if they die first — requires filing a federal estate tax return even if you owe no tax.

Give Money Away During Your Lifetime

You can give away up to $6.94 million (the 2024 New York exemption) without owing any estate tax, and you can do this while you are alive. This is called using your exemption. The money leaves your estate, so it is not taxed when you die, and the person who receives it pays no tax either.

You can also give away $18,000 per person per year (2024 limit) without filing any paperwork or counting against your exemption. If you are married, you and your spouse together can give $36,000 per year to each child, grandchild, or anyone else. These annual gifts are a straightforward way to shrink your estate over time without any legal structure.

The trade-off: once you give the money away, it is gone. You cannot take it back, and you lose any income it would have earned. If you think you might need the money later, lifetime gifts are not the right move.

Use a Spousal Lifetime Access Trust (SLAT)

A SLAT is a trust you create during your lifetime and fund with money or assets. Your spouse can access the money if they need it, but the assets inside the trust are not part of your taxable estate when you die. This lets you remove assets from your estate while keeping some access to them through your spouse.

You must file a gift tax return when you fund the trust (Form 709), and the amount you put in counts against your $6.94 million exemption. If your spouse actually takes money out, they are not taxed — the trust is designed to let them do that. But if they never touch it, the money stays in the trust and passes to your children or whoever else you named, outside your taxable estate.

The main risk: if you and your spouse divorce, the trust assets are usually considered part of the marital property to be divided. Also, if your spouse dies before you and the trust is not written carefully, the assets might come back into your estate. You need a lawyer to draft this correctly.

Remove Life Insurance From Your Estate With an ILIT

A life insurance policy on your life is part of your taxable estate, which means the death benefit gets taxed when you die. If you have a $2 million policy, that $2 million is added to your estate value for tax purposes. An Irrevocable Life Insurance Trust (ILIT) owns the policy instead of you, so the death benefit is not part of your estate.

To set this up, you create the trust, transfer your existing policy to it (or have the trust buy a new policy), and the trust pays the premiums. When you die, the death benefit goes to the trust, not your estate, and is not taxed by New York. Your beneficiaries receive the money from the trust.

The word "irrevocable" means you cannot change the trust or take the policy back once it is in place. You also cannot be the trustee — someone else must manage it. If you transfer an existing policy, you must survive three years or the policy is pulled back into your estate anyway. These rules are strict, but the tax savings on a large policy can be substantial.

Transfer Your Home With a QPRT

A may have access to Personal Residence Trust (QPRT) lets you transfer your home to your children at a reduced tax cost while you continue to live in it for a set number of years. When the term ends, the home belongs to your children, but you can stay and pay them rent if you want.

Here is how it works: you put your home into the trust and set a term — say, 10 years. During those 10 years, you live in the home rent-free. The value of the home is discounted for gift tax purposes because your children's ownership is delayed. You file a gift tax return and the discounted value counts against your exemption. When the 10 years are up, the home passes to your children outside your estate, so it is not taxed again when you die.

The risk: if you die before the term ends, the home comes back into your estate and you get no tax benefit. You must outlive the term for the strategy to work. Also, once the term ends and the home belongs to your children, you have no legal right to stay unless you pay rent — though in practice families often work this out informally.

Leave Money to Your Spouse or Charity

Gifts to your spouse are never taxed by New York, no matter how much. If you leave your entire estate to your spouse, there is no New York estate tax at all. The tax is deferred until your spouse dies and their estate is settled.

Gifts to may have access to charities are also never taxed. If you leave $1 million to a hospital, university, or other may have access to charity, that $1 million is removed from your taxable estate. You get no income tax deduction for this (the deduction goes to your estate, not to you), but you do reduce your estate tax.

A Charitable Remainder Trust (CRT) combines both benefits: you fund the trust with appreciated assets, receive income from the trust during your lifetime, and the remainder goes to charity when you die. The assets are removed from your estate, and you get an income tax deduction when you create the trust. This works well if you own stock or real estate that has grown a lot in value.

File a Federal Estate Tax Return to Preserve Portability

If you are married, your spouse can use your unused exemption when you die — but only if you file a federal estate tax return (Form 706) even if you owe no federal tax. This is called portability. New York does not have portability, so this only helps with federal tax, but it is important if your combined estate might exceed the federal limit ($13.61 million per person in 2024).

Without portability, if you die first and leave everything to your spouse, your exemption is wasted. Your spouse can only use their own exemption. With portability, your spouse can use both exemptions, which doubles the amount they can pass to your children tax-free at the federal level.

The catch: you must file Form 706 within nine months of death (or request an extension). If you do not file, portability is lost and cannot be recovered. Many estates that owe no tax skip this filing, which is a mistake if the surviving spouse might need that extra exemption later.

Frequently Asked Questions

Do I owe New York estate tax if my estate is under $6.94 million?

No. New York only taxes estates above that threshold. If your estate is smaller, you owe no New York estate tax, though you may still owe federal tax if your estate exceeds the federal exemption ($13.61 million in 2024). The thresholds change yearly, so check the current year's limit.

Can I use my federal exemption to avoid New York tax?

No. New York has its own separate exemption. You can owe New York tax even if your estate is too small for federal tax. The two systems do not overlap, so you must plan for both if your estate is large.

What happens if I die before my QPRT term ends?

The home comes back into your taxable estate, and you get no tax benefit from the trust. The QPRT only works if you survive the full term. This is why people usually choose a term they are confident they will outlive — often 10 to 15 years.

Do I have to tell the IRS about gifts I make during my lifetime?

Only if they exceed $18,000 per person per year (2024 limit). Gifts within that amount need no paperwork. Larger gifts require you to file Form 709 (gift tax return), even if you owe no tax. Filing protects you if the IRS questions the gift later.

Can I change my mind about an irrevocable trust?

No — that is what "irrevocable" means. Once you create it and fund it, you cannot take the assets back or change the terms. You can only modify it if all beneficiaries agree, which is rarely practical. Make sure you want the arrangement before you sign.