Why 2025 is the Critical Year for Your New York Estate Plan
For over 30 years, I have guided countless New York families through the complexities of estate planning. In all that time, I have rarely seen a moment as critical as the one we face right now. A significant, predetermined change in federal tax law is set for January 1, 2026, creating what many are calling the “estate tax cliff.” For individuals and families with substantial assets, the window of opportunity to protect your legacy is closing faster than you think. Acting in 2025 is not just advisable; it is essential.
The Tax Cuts and Jobs Act (TCJA) of 2017 temporarily doubled the federal estate and gift tax exemption. This generous provision is scheduled to “sunset,” or expire, at the end of 2025. Consequently, the exemption amount will revert to its pre-TCJA level, adjusted for inflation. This means it will effectively be cut in half. For New Yorkers, who already navigate a separate state-level estate tax, this federal change introduces a new layer of urgency and complexity. Understanding what is at stake and taking proactive steps now can save your heirs millions of dollars and significant stress. This guide will illuminate the path forward.
Understanding the Current Estate Tax Landscape (Pre-2026)
To grasp the magnitude of the upcoming change, it is crucial to understand the current rules. The federal estate tax is a tax on your right to transfer property at your death. As of 2025, due to the TCJA, an individual can transfer approximately $13.61 million (this figure is adjusted for inflation annually) without incurring any federal estate or gift tax. For a married couple, this amount is effectively doubled through a concept called “portability,” allowing them to shield over $27 million from federal taxes.
This high exemption has meant that for the past several years, a vast majority of Americans have not needed to worry about federal estate taxes. However, this has also created a sense of complacency. Many families whose net worth falls between $6 million and $27 million may have put off sophisticated wills and trusts planning, believing they were safely under the threshold. That assumption is about to become a very costly mistake. At Morgan Legal Group, we help clients understand these thresholds and prepare for what’s next.
New York’s Own Estate Tax: A Separate Challenge
Moreover, it’s vital for residents to remember that New York has its own estate tax, which operates independently of the federal system. For 2025, the New York State estate tax exemption is $6.94 million. Unlike the federal system, New York’s tax structure has a “cliff.” If the value of your taxable estate exceeds the exemption amount by more than 5%, the entire estate becomes subject to tax, not just the amount over the threshold. This punitive feature makes precise planning an absolute necessity for anyone with assets near or above this level. Our team is deeply familiar with navigating both state and federal regulations to create a cohesive plan.
The 2026 Sunset: What Is Changing and Why It Matters
On January 1, 2026, unless Congress intervenes, the federal estate and gift tax exemption amount will be slashed dramatically. It is projected to return to approximately $7 million per individual after being adjusted for inflation. This single change will instantly expose millions of families across the country, and particularly in high-asset areas like New York City, to a potential 40% federal estate tax.
Let’s consider a practical example. Imagine a couple in Brooklyn with a combined estate of $15 million, consisting of their brownstone, investment portfolios, and a small business. Under 2025 rules, their estate is well below the federal exemption of over $27 million. They would face no federal estate tax. However, if they were to pass away in 2026 without proper planning, their new combined exemption would be around $14 million. This would leave approximately $1 million exposed to a 40% tax, resulting in a $400,000 tax bill for their children. This is a significant loss that could be entirely avoided with proactive planning.
The “Use It or Lose It” Principle
The IRS has confirmed that individuals who use their high exemption for lifetime gifts before 2026 will not be penalized if the exemption amount later decreases. This is known as the anti-clawback rule. It essentially creates a “use it or lose it” scenario. By making large, strategic gifts to family members or trusts now, while the exemption is high, you can permanently remove those assets from your taxable estate, locking in the benefits of the current law. This is one of the most powerful strategies available today, but it requires careful execution with the help of an experienced estate planning attorney like Russel Morgan.
Proactive Strategies for New Yorkers Before the Deadline
With a clear deadline in sight, the focus shifts from theory to action. Waiting to see what Congress might do is a gamble with your family’s inheritance. The most prudent course is to act based on the law as it is written today. Fortunately, there are numerous powerful and legal strategies that can be implemented to mitigate or even eliminate exposure to the 2026 tax changes. These strategies often involve the use of specialized trusts and gifting plans tailored to your unique financial situation and family goals. For a personalized consultation, we encourage you to schedule an appointment.
Strategic Gifting: The Foundation of Tax Efficiency
Gifting is a foundational element of sophisticated estate planning. Before diving into complex trusts, it’s important to leverage the simplest tools available. Strategic gifting allows you to reduce your taxable estate while simultaneously helping your loved ones during your lifetime.
- Annual Exclusion Gifts: In 2025, you can give up to $18,000 per year to as many individuals as you like without filing a gift tax return or using any of your lifetime exemption. A married couple can combine their gifts to give $36,000 per recipient. Over several years, this can transfer a substantial amount of wealth tax-free.
- Direct Payment of Expenses: You can also pay for someone’s tuition or medical expenses without it counting as a taxable gift, provided you pay the institution directly. This is an excellent way to support grandchildren or other relatives without impacting your exemptions.
- Large Lifetime Gifts: The most significant opportunity before 2026 is to make large gifts that utilize the current high lifetime exemption. By gifting assets now, you remove both the assets and any future appreciation on them from your estate, securing a massive tax advantage.
Advanced Trust Planning: The Ultimate Protection
For those looking to make substantial gifts while retaining a degree of control or protecting assets, irrevocable trusts are the cornerstone of modern estate planning. These legal instruments can be customized to achieve a wide variety of goals, from tax reduction to asset protection and legacy preservation. Our expertise in wills and trusts is unparalleled.
Spousal Lifetime Access Trust (SLAT)
A SLAT has become one of the most popular and powerful tools in the lead-up to the 2026 sunset. Here’s how it works: one spouse (the grantor) creates a trust for the benefit of the other spouse (the beneficiary). The grantor makes a large gift to the SLAT, using their lifetime gift tax exemption. The assets in the trust are now outside the grantor’s estate. However, the beneficiary spouse can still receive distributions from the trust. This provides an indirect benefit to the grantor, as the couple can still access the funds if needed. It’s a way to “have your cake and eat it too”—removing assets from your combined estate while maintaining a safety net. This is a complex strategy that demands expert legal guidance.
Irrevocable Life Insurance Trust (ILIT)
Life insurance proceeds are generally income-tax-free, but they are often included in your taxable estate. An Irrevocable Life Insurance Trust (ILIT) is a simple yet powerful tool designed to solve this problem. You create an ILIT, and the trust itself owns your life insurance policy. You make annual gifts to the trust, which the trustee then uses to pay the policy premiums. Upon your passing, the death benefit is paid to the trust, not to your estate. The funds are then distributed to your beneficiaries according to the trust’s terms, completely free of estate taxes. This can provide immediate liquidity for your family to pay any taxes or other expenses without having to sell assets like a family home or business.
Grantor Retained Annuity Trust (GRAT)
A GRAT is an excellent tool for transferring appreciating assets with minimal gift tax consequences. You, the grantor, transfer assets that you expect to grow in value (like stocks or business interests) into a trust for a fixed term. During this term, the trust pays you back an annuity each year. The total value of these annuity payments is calculated to be roughly equal to the initial value of the assets plus a small, IRS-mandated interest rate. If the assets in the trust grow at a rate higher than that interest rate, the excess appreciation passes to your beneficiaries at the end of the term, completely gift-tax-free. It’s a highly effective way to transfer wealth in a low-interest-rate environment.
Charitable Remainder and Charitable Lead Trusts (CRTs and CLTs)
For philanthropically inclined individuals, charitable trusts offer a way to support causes you care about while receiving significant tax benefits. A Charitable Remainder Trust (CRT) provides you or another beneficiary with an income stream for a set term, after which the remaining assets go to a charity. This can provide you with an immediate income tax deduction. Conversely, a Charitable Lead Trust (CLT) pays an income stream to a charity for a set term, and the remaining assets then pass to your non-charitable beneficiaries (like your children), often with reduced or eliminated gift or estate tax. These tools are central to our comprehensive estate planning services.
Updating Your Existing Plan: A Non-Negotiable Task
Even if you have an existing estate plan, it is not immune to these changes. Many plans created before the TCJA were designed around a much lower exemption amount. For instance, a formula in your will or trust that divides assets based on the maximum exemption amount could now lead to unintended consequences, potentially disinheriting a spouse or sending far more to a trust than you ever intended. Reviewing and updating your documents is not just a suggestion; it is a critical necessity in 2025. Failure to do so could mean your current plan will not work as you expect when the time comes.
The review process should involve a thorough analysis of your assets, beneficiary designations, and the specific language in your wills, trusts, and power of attorney documents. It’s also an opportunity to consider related issues, such as planning for incapacity, which is a key component of our NYC elder law practice.
The Role of a Seasoned New York Attorney
Navigating this environment is not a DIY project. The stakes are far too high, and the interaction between federal tax law, New York estate law, and complex financial instruments requires professional expertise. An experienced attorney does more than just draft documents; they provide strategic counsel. At Morgan Legal Group, we help you:
- Analyze Your Net Worth: We start with a comprehensive assessment of your assets to determine your potential exposure to both federal and state estate taxes.
- Clarify Your Goals: We listen to your wishes for your spouse, children, and charitable interests to design a plan that reflects your values.
- Model Different Scenarios: We can project the tax implications of acting now versus waiting, providing clear data to inform your decisions.
- Implement Advanced Strategies: From SLATs to GRATs, we have the expertise to structure and implement the right tools for your situation, ensuring they comply with all legal requirements.
- Coordinate with Your Financial Team: We work alongside your financial advisor and accountant to ensure your legal and financial strategies are perfectly aligned.
Our firm handles all aspects of wealth preservation, from foundational planning to complex probate administration and guardianship proceedings. We are committed to providing clarity and confidence in an uncertain time. To learn more about our team, you can read about our founder, Russel Morgan, Esq.
Frequently Asked Questions About the 2026 Estate Tax Changes
As this deadline approaches, our clients understandably have many questions. Here are answers to some of the most common inquiries we receive.
What if Congress changes the law before 2026?
While it is possible that Congress could act to extend the current exemptions or create a new framework, there is no guarantee. Political gridlock and competing priorities make legislative action highly uncertain. The most conservative and responsible approach is to plan according to the law that is currently on the books. Planning now secures the benefits, and many strategies can be built with flexibility to adapt to future changes.
Is my estate large enough to be concerned?
If your net worth as an individual is approaching or exceeds $7 million, or as a couple is approaching or exceeds $14 million, you should absolutely be concerned and proactive. Remember to factor in all assets: real estate (including your primary residence and vacation homes), retirement accounts like 401(k)s and IRAs, life insurance death benefits, and business interests. Many New Yorkers are surprised to find their net worth is much higher than they thought, especially given real estate appreciation.
I already have a will. Isn’t that enough?
A will is a fundamental document that dictates how your assets are distributed after your death, but it does very little to address lifetime gifting or sophisticated tax planning. A will does not help you utilize your lifetime gift tax exemption before it is reduced. Furthermore, assets passed through a will must go through the probate process, which can be time-consuming and public. Effective estate tax planning almost always involves the use of trusts.
Are these strategies only for the ultra-wealthy?
Not anymore. The 2026 changes will bring many more families into the category of needing advanced planning. Professionals, small business owners, and anyone who has seen significant growth in their investments or real estate holdings over the past decade may find themselves subject to the estate tax. These strategies are for anyone who wants to preserve their hard-earned assets for their family rather than sending up to 40% to the government. We also handle related family law matters that can intersect with estate planning.
How long does it take to implement these plans?
Sophisticated estate planning takes time. It involves detailed consultations, financial analysis, drafting complex legal documents, and potentially retitling assets. It is not a process that can be rushed in the last few weeks of 2025. To ensure your plan is thoughtfully crafted and properly executed, the time to start is now. Waiting until the end of 2025 will create a frantic rush, and many law firms may not be able to take on new clients. For those in Long Island or the surrounding counties, proactive planning is just as critical.
Your Legacy is at Stake – The Time to Act is Now
The upcoming changes to the estate tax are not a distant possibility; they are a legislated reality set to take effect in a very short time. The decisions you make—or fail to make—in 2025 will have a profound and lasting impact on your family’s financial future. This is a rare moment where a clear and actionable deadline provides an opportunity to achieve monumental tax savings and secure your legacy.
Don’t let this window close without taking action. At Morgan Legal Group, we combine decades of experience in New York law with a proactive, forward-looking approach to client service. We are here to help you understand your options and implement a robust plan that protects your assets and provides peace of mind. The first step is a conversation.
We invite you to get in touch with our team of dedicated professionals. Whether you are creating your first estate plan or need to update an existing one, we have the expertise to guide you. Schedule a consultation today and take control of your legacy before the rules change. For more information from a trusted external source, you can visit the IRS page on Estate and Gift Taxes.
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