Mind the Gap: Coping Strategies for Federal and New York Estate Tax Exclusions

The recent changes in the federal estate tax laws were supposed to make estate planning easier. The “permanent” increase in the federal estate tax exclusion, combined with the “portability” of that exclusion between spouses, ideally should have eliminated tax considerations for all but the very richest American taxpayers. However, for many New York residents, the substantial—and growing—gap between the federal and state estate tax exclusions (presently $5.25 million and $1 million respectively) involves multifaceted choices and necessitates careful planning.

No one strategy will optimize the use of federal and New York estate tax exclusions in all circumstances. For some married couples, it may make more sense to pay New York estate taxes at the death of the first spouse, minimizing federal and New York taxes at the death of the survivor. In other cases, it may make more sense to minimize or eliminate New York taxes at the first spouse’s death and risk exposure to higher federal and New York taxes at the survivor’s death.