As we enter 2025, significant changes to both federal and New York estate tax exclusions are on the horizon. These updates are crucial for estate planning and could impact your financial strategies. Here’s what you need to know:
Federal Estate Tax Exclusion
For 2025, the federal estate tax exclusion amount has increased to $13.99 million per individual (up from $13.61 million in 2024). This means that married couples can shield up to $27.98 million from federal estate and gift taxes. However, it’s important to note that this higher exemption is temporary. If Congress does not act, the exemption will revert to approximately $7 million (adjusted for inflation) in 2026.
New York Estate Tax Exclusion
In New York, the estate tax exclusion amount for 2025 is set at $7.16 million (up from $6.94 million in 2024). Unlike the federal system, New York’s estate tax includes a “cliff” that can result in estates slightly exceeding the exemption amount being taxed on the entire estate value, not just the excess.
Understanding the New York Estate Tax Cliff
The New York estate tax cliff is a unique feature of the state’s tax system. If an estate’s value exceeds the exclusion amount by more than 5%, the entire estate becomes subject to New York estate tax, not just the amount over the exclusion. For example, if the exclusion amount is $7.16 million, an estate valued at more than approximately $7.52 million (105% of $7.16 million) would be taxed on its entire value. This can result in a significant tax liability, making it crucial to plan carefully to avoid falling off the cliff.
Gift Tax Annual Exclusion
The annual gift tax exclusion for 2025 has increased to $19,000 per recipient (up from $18,000 in 2024). This means you can gift up to $19,000 to as many individuals as you wish without incurring gift tax or needing to file a gift tax return.
Key Considerations
- Accelerated Gifting: With the potential reduction in the federal exemption in 2026, consider making significant gifts in 2025 to take advantage of the higher exemption, if you can afford to do so.
- Review Estate Plans: Ensure your estate plans align with the current laws and consider incorporating trusts or other vehicles to maximize tax efficiency.
- Mitigate New York’s Estate Tax Cliff: Implement strategies to keep the estate value below the New York exemption threshold to reduce the taxable estate value. Additionally, ensure your estate plan, including asset titling, wills, and beneficiary designations, is aligned to maximize each spouse’s New York exclusion. It’s important to note that the New York exclusion is not portable, meaning that any unused portion of the exclusion cannot be transferred to the surviving spouse. Therefore, careful planning is essential to fully utilize each spouse’s exclusion.
Final Thoughts
Staying informed about these changes and proactively adjusting your estate planning strategies can help you minimize tax liabilities and ensure a smoother transfer of wealth. If you have any questions or need assistance with your estate planning, please do not hesitate to contact us.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
