New York imposes its own estate tax separate from the federal tax. If your estate exceeds the New York exemption, the state taxes the transfer — and because of the “cliff,” estates that exceed the exemption by more than about 5% lose the exemption entirely and are taxed on the whole estate, not just the excess. For Brooklyn families whose net worth is concentrated in an appreciated brownstone, crossing that cliff can cost hundreds of thousands of dollars. Exemption figures change yearly — verify the current-year amount.
This page explains how the cliff works, how New York differs from the federal system, and the strategies that reduce exposure. Estate tax is governed by New York Tax Law Article 26.
How the New York estate tax works
Definition — Gross estate: Everything you own at death — your Brooklyn home, accounts, life insurance you own, business interests. Taxable estate: The gross estate minus deductions (debts, the marital deduction, charitable gifts).
If your taxable estate is at or below the New York exemption, no NY estate tax is due. Above it, New York taxes the estate at graduated rates (up to roughly 16%). The trap is the cliff.
The New York “cliff” (the 105% rule) — with a worked example
Definition — The cliff: If your New York taxable estate exceeds the exemption by more than 5% (i.e., reaches 105% of the exemption), the exemption phases out completely and the entire estate is taxed from the first dollar — not just the amount over the exemption.
Worked example (using a placeholder $7 million exemption — verify the current figure):
- A Park Slope estate of exactly the exemption: $0 NY estate tax.
- An estate at 104% of the exemption: small tax on the modest overage.
- An estate at 106% of the exemption (just over 105%): exemption gone — the whole estate is taxed, potentially several hundred thousand dollars.
A single appreciated brownstone can push an otherwise modest Brooklyn estate over the cliff. Planning to stay under, or to use deductions, is essential.
Federal vs. New York estate tax
| Feature | Federal | New York |
|---|---|---|
| Separate tax? | Yes | Yes (Tax Law Art. 26) |
| Exemption | Much higher (multi-million) — verify current | Lower than federal — verify current |
| “Cliff” phase-out | No | Yes (105% rule) |
| Top rate | ~40% | ~16% |
| Portability between spouses | Yes | No |
| Gift tax | Yes (lifetime) | No standalone gift tax |
The exemption gap means many Brooklyn estates owe New York estate tax while owing no federal tax.
No NY inheritance or gift tax — but watch the 3-year add-back
New York has no inheritance tax (a tax on the person receiving) and no standalone gift tax. But there is a catch: New York applies a three-year gift add-back — taxable gifts made within three years of death are added back into the New York taxable estate. So deathbed gifting to dodge the cliff generally does not work; gifts must be made well before death to count.
Portability — and why New York lacks it
Definition — Portability: A federal rule letting a surviving spouse use the deceased spouse’s unused exemption. New York does not have portability.
Because New York lacks portability, a married Brooklyn couple cannot simply rely on one spouse’s exemption carrying over. Each spouse’s exemption must be captured at their own death — which is why credit shelter trusts matter (below).
Strategies to reduce New York estate tax
- Credit shelter (bypass) trust — captures the first spouse’s NY exemption that would otherwise be lost, since NY has no portability.
- Lifetime gifting — made more than three years before death to clear the add-back.
- Irrevocable Life Insurance Trust (ILIT) — keeps life insurance proceeds out of your taxable estate.
- Charitable giving — deductible and can pull an estate back under the cliff.
- Trust planning for appreciated property — see trusts.
The Brooklyn angle: brownstone appreciation and cliff exposure
Brooklyn property has appreciated dramatically. A townhouse bought in Bedford-Stuyvesant or Crown Heights decades ago for a modest sum may now be worth $2–3 million or more. Add retirement accounts and life insurance, and a “house-rich” Brooklyn family can quietly exceed the New York exemption and risk the cliff — even without feeling wealthy. Because the home is illiquid, an unplanned tax bill can force a sale. This is the central reason appreciated-home Brooklyn estates plan early.
Frequently asked questions
Does Brooklyn or New York City have its own estate tax? No separate city estate tax. Brooklyn estates face the New York State estate tax (Tax Law Art. 26) and possibly the federal tax.
Is my Brooklyn home counted at purchase price or current value? Current fair market value at death — which is why appreciated brownstones drive cliff exposure.
Will my heirs owe tax on the home’s gain? Inherited property generally receives a stepped-up basis to date-of-death value, reducing capital gains tax if heirs sell — a separate benefit from the estate tax.
How do I find the current exemption amount? New York adjusts it; confirm the current-year figure before relying on any number, including the placeholders above.
Plan around the cliff
A consultation can model your estate against the current New York exemption and identify whether trust or gifting strategies apply. Book 30 minutes with Russel Morgan. Note: tax figures change annually — verify current-year numbers.
Have a question about your estate?
Talk it through with Russel Morgan — free 30-minute consult.